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John Schnatter steps up his fight against Papa John’s

While the chain’s founder expressed support for investor Starboard Value, he also accused the board of protecting its own interest.
Photograph: Shutterstock

John Schnatter stepped up his fight against Papa John’s and its board of directors this week, even as he expressed support for the chain’s new chairman, Jeff Smith, and his strategies for rebuilding the company.

Schnatter, Papa John’s founder, former chairman and CEO, filed an amended complaint accusing the company’s board of taking steps to “entrench themselves” at the expense of its shareholders.

“Mr. Schnatter welcomes the comments that have come from Mr. Smith and the company in the past few days,” Garland Kelley, Schnatter’s attorney, said in a statement. “The prior board, however, took numerous steps to entrench themselves, and today’s action seeks to undo that proper conduct.”

Schnatter has taken issue with a “poison pill” provision the company approved last year after the founder resigned and the board cancelled his founder’s agreement and removed him as spokesman. The poison pill sought to prevent Schnatter or other shareholders from amassing large numbers of shares in a potential hostile takeover. Schnatter owns an estimated 26% of Papa John’s shares.

The amended lawsuit takes issue with a provision of the poison pill that Schnatter says prevents shareholders from holding “any substantive discussion about the company.”

The complaint also seeks to undo a provision in the agreement between the company and Starboard Value, Smith’s activist fund that agreed to invest at least $200 million in Papa John’s. The provision requires Starboard to vote its shares in favor of the company’s list of directors.

The provision “serves only one purpose, to further entrench the prior board, one that has repeatedly proven itself willing to place its own self-interest above that of shareholders,” Schnatter said in a release.

Smith has said that Papa John’s could mimic the success that Starboard had with Olive Garden, which improved sales by focusing on service and quality.

Papa John’s had not responded to a request for comment as of Tuesday morning.

The amended lawsuit suggests that a dispute between Papa John’s and its founder will not go away despite the agreement between the company and Starboard last week.

Schnatter has been fighting with the company he founded since he was ousted last summer after he acknowledged making a racial slur during a conference call. That followed comments he made in November 2017 suggesting that NFL player protests were to blame for the chain’s weakening same-store sales.

The controversy has hurt the company’s same-store sales, which declined 10.5% in January despite the chain’s efforts to turn them around. Franchisees of the chain have been closing locations.

Schnatter has sued the company multiple times and started a website aimed at arguing his side of the story. He has blamed sales challenges on existing management, notably his handpicked successor as CEO, Steve Ritchie, and says his comments were misinterpreted.

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