Papa John’s adopts ‘poison pill’ plan

Move would block ousted founder from buying majority stake.

Papa John’s International Inc.’s board approved a “poison pill” plan to fend off any attempt by founder John Schnatter to gain a controlling interest as the pizza chain seeks distance from its controversial namesake.

Schnatter, 56, resigned as chairman this month after reports surfaced that he used a racial slur and graphic depictions of violence against minorities during a conference call with a media agency in May. He admitted to using the offensive term and apologized, while saying his comments were taken out of context.

Adopting the poison pill is the latest effort by Papa John’s to loosen ties to the founder, who remains a director and owns a 29% stake that could be used to mount a challenge. Schnatter regrets resigning as chairman and believes directors mishandled the situation by pushing him out without investigating, people familiar with his thinking said last week.

The board adopted a limited-duration stockholder rights plan that would become exercisable if an investor acquired 15% or more of Papa John’s shares without the approval of directors, the Louisville, Ky., company said late Sunday. It also declared a dividend distribution of one right for each outstanding share.

The rights plan is intended to “protect the interests of the company and its stockholders by reducing the likelihood that any person or group gains control of Papa John’s through open market accumulation or other tactics without paying an appropriate control premium,” the statement said.

Papa John’s shares have declined nearly 40% over the last year amid the controversies involving Schnatter, while same-store sales have begun to fall in recent quarters in the face of more competition from Domino’s Pizza and Pizza Hut. On Monday, Papa John’s shares dropped 9.7% to $46.56.

A committee of directors recently terminated an agreement that designated Schnatter as the face and voice of the brand. The committee also ordered that he be evicted from the headquarters and removed from marketing materials.

Late last year, Schnatter stepped down as chief executive of the pizza chain he started in his father’s Indiana tavern. He quit the post after criticizing the leadership of the National Football League, blaming disappointing pizza sales on how the NFL handled protests by players during the national anthem. In February, Papa John’s ended a longtime sponsorship of the NFL to instead focus on marketing with specific teams.

Forbes, citing 37 current and former Papa John’s employees, reported last week that Schnatter spied on workers and engaged in sexually inappropriate conduct resulting in at least two confidential settlements. A representative of Schnatter said the Forbes article contains “numerous inaccuracies and misrepresentations.” Papa John’s said an outside firm hired by the board’s special committee will determine the company’s path going forward.