Papa John’s uses ‘poison pill’ on founder

Papa John’s took an additional — and highly unusual — step to distance itself from its controversial founder, fearing he might move to acquire a majority stake in the pizza chain he founded more than 30 years ago.

On Sunday, Papa John’s announced a stockholder rights plan — commonly known as a “poison pill.” The maneuver would block any investor from acquiring more than 15 percent of Papa John’s stock without board approval. The company’s founder, John Schnatter, remains on the board and already owns a 29 percent stake. The new plan would constrain Schnatter’s stake to less than 50 percent.

Companies that opt for “poison pills” often do so to block activist investors from taking a controlling interest — or to thwart hostile takeovers. But experts say the move has rarely if ever been used against a company founder.

“If it’s happened before, it is circumstantially quite rare,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

It’s the most extreme step to date in actions the company has taken to limit its association with Schnatter. Last week, the board barred him from using his office at company headquarters in Louisville.

Elson described the “poison pill” option as “an antitakeover move” as Papa John’s looks to sever ties with Schnatter in as many ways as possible. Papa John’s could still have the choice of not renominating Schnatter to its board, Elson said.

But the rare “poison pill” option may at least in part be the company’s answer to its “very difficult position,” Elson said.

“What he did isn’t illegal. It’s just very, very disturbing,” Elson said. “He insulted a good deal of their customers, and that’s the problem. But he’s still a large shareholder. And a shareholder, whether you agree with them or not, is still a shareholder.”

Earlier this month, Forbes reported that Schnatter used the N-word during a call between Papa John’s executives and the marketing agency Laundry Service.