Amid speculation that buyers are seeking to take over Papa John’s International Inc., founder John Schnatter has asked that the chain’s current management revise the “poison pill” provision in a plan issued on July 23 that prevents him from working with potential buyers.
The plan allows current shareholders to buy more shares at a discount in the event of a takeover attempt, excluding any person or group that acquires more than 15 percent or more of the company’s common stock without approval of the board of directors. The measure would drastically increase the price of a hostile takeover.
An exception was made for Schnatter, who already owns around 30 percent of the company. He would be excluded from the right to purchase the shares at a discount if he, or people he acts in concert with, acquire 31 percent or more of the company’s shares.
In a letter dated Oct. 18, Schnatter requested that what he called the “Acting in Concert” provision be removed, indicating that it violated the laws of Delaware, where Papa John’s is registered.
“As you know, no Delaware court ever has found that type of ‘wolfpack’ provision in a poison pill is consistent with Delaware law. In fact, the provision goes far beyond Delaware law by unreasonably curtailing the rights and legitimate interests of shareholders. Among other things, it precludes shareholders from holding any substantive discussions about the Company because of the threat of crippling dilution of their ownership interest in the Company.”
Papa John’s stock has been buoyed for the past three weeks by rumors and media reports that companies, including activist investor Nelson Peltz’s Trian Fund Management LP, were seeking to buy the pizza delivery chain, and by actual share purchases by Legion Partners Asset Management LLC.
In his letter, Schnatter said those reports of potential suitors added urgency to the removal of the provision.
“[T]here surely are other shareholders who wish to engage with their fellow shareholders about the Company,” he said. “Several third parties have expressed an interest in speaking with me. The ‘Acting in Concert’ provision, however, preclude me from discussing the Company, my investment in the Company or the activities or plans of potential investors or shareholders with them or anyone else with an interest in the Company.”
He added that preventing those conversations harmed shareholders and therefore was a violation of the board’s legal duties.
A Papa John’s spokesman said, “The independent directors of the Papa John’s Board continue to believe the Rights Plan is in the best interests of the Company and all Papa John’s stockholders. As detailed when it was adopted, the Rights Plan does not prevent the Board from considering any offer that it considers to be in the best interest of Papa John’s stockholders. The plan also reduces the likelihood that any person or group gains control of Papa John’s without paying an appropriate control premium to all of the Company’s stockholders.
Schnatter said in his letter that if he did not receive a response from the board by Oct. 23, “I reserve all rights to take any action to ensure the Company permits the shareholder to exercise their rights.”
A spokesman for Schnatter said he had no further comment.
Schnatter has been in conflict with the Louisville, Ky.-based chain’s current management since he resigned as chairman of the board on July 11, 2018, following reports that he used racially charged language in a conference call with the chain’s marketing agency in May.
Schnatter, who remains a member of the board of directors and the chain’s largest shareholder, has since said his resignation was a mistake and has filed two lawsuits against the company and launched his own public relations campaign via his own website savepapajohns.com, to tell his side of the story.
In his letter, he renewed his attack on management under CEO Steve Ritchie, who took that position at the beginning of the year in the aftermath of controversy following remarks by then-CEO Schnatter during a Nov. 1 conference call blaming declining same store sales, in part, on the National Football League’s failure to resolve a conflict with players who were silently protesting during the singing of the national anthem.
Papa John’s was an official sponsor of the NFL at the time. It has since been replaced by Pizza Hut.
Ritchie recently restructured his management team, promoting Mike Nettles to chief operating and growth officer.
Schnatter criticized those moves.
“The leadership team that Steve Ritchie established is crumbling, and now he is promoting the wrong people and losing long-term employees who provided the essence of what Papa John’s was created to do — provide customers with better ingredients and better pizza,” he said.
Papa John’s, which is the third largest pizza chain in the world, behind Domino’s and Pizza Hut, has more than 5,000 locations worldwide.
Contact Bret Thorn at [email protected]
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