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Actions of Papa John's International (NASDAQ: PZZA) climbed 9% last Tuesday following rumors that the owner of the pizzeria could be bought. An activist investor recently bought shares in the company, while its founder and former chairman, John Schnatter, reportedly had talks with private equity firms to help buy the company.
After a year of controversy, investors are desperate for a catalyst to propel their stock up. However, the buy by anyone seems exceptionally difficult and probably will not happen.
Papa John's investors hope someone will bring them good news. Source of the image: Getty Images.
The quarter of the pizzeria sacked
Papa John 's suffered a year of turmoil that began with Schnatter, accusing the protests of the national anthem of the National Football League from being at the same time. origin of the poor performance of the pizza store at a results conference last fall. Schnatter harshly criticized the NFL for not doing more to calm the protests of its players during the national anthem. At the time, Papa John's was the official pizza of the NFL, a sponsorship she had abandoned earlier this year. (Yum! brands"Pizza Hut is now the official sponsor of the pizza league.)
Last December, because of the bad publicity that was made to him, Schnatter stepped down as CEO of Papa John's, although he retains his position as chairman of the board. However, during a call for results session this summer, Schnatter commented that some perceived racism as insensitive.
Information about these remarks was leaked to the press in July, reviving the controversy. While the turmoil again invaded the pizza maker, Schnatter resigned as president. However, he quickly regretted this decision, as the new CEO, Steve Ritchie, began to purge Schnatter's image of all of Papa John's advertising and to topple him from his offices at the Louisville chain's headquarters. The company has also terminated Schnatter's "Founder's Agreement" allowing it to serve as spokesperson for the channel.
Schnatter retaliated. The very public and acrimonious two-way charges weighed on the stock of Papa John, who lost more than half of his value between December 2016 and August 2018. The potential of taking care of Papa John's nourished the hope that the pizza chain could win back some of the losses.
Hope is eternal
Speculation on the buyout gained momentum last week after The Wall Street Journal – citing "familiar people," said Nelson Peltz and his Trian Fund Management hedge fund were considering a takeover bid for Papa John's. Peltz also organized a meeting between Schnatter and the management of Burger Joint Wendy (NASDAQ: WEN) end of June to discuss a possible agreement, according to WSJ. However, Wendy's retreated after Schnatter's latest hubbub.
Meanwhile, Schnatter reportedly met with private equity firms to discuss a possible takeover of the company, although he denied it. Papa John's refused to comment on the rumors.
More recently, Legion Partners Asset Management and the California State Teachers' Retirement System (CalSTRS) have acquired nearly 3% stake in the company. Legion Partners believes that Papa John's could increase the price of his stock "through strategic partnerships or the improvement of operations as an independent company", although it did not not specified the type of partnership envisaged.
A Ave Maria play
A takeover of Papa John's would be difficult to execute, whether this one was initiated by Schnatter or by the current management team.
For Papa John's to sell, he would have to overcome Schnatter's 30% stake in the company. This makes its cooperation in any potential transaction crucial for its outcome. Given the invective launched between him and the board of directors, he might not be willing to take part in the table.
On the other hand, Papa John's so-called "poison pill" defense will prevent Schnatter from buying the pizza chain. The poisoned pill option would immediately dilute the value of Papa John's shares if a person acquires more than 15% of the outstanding shares (31% in the case of Schnatter) by allowing shareholders to buy twice the value of their shares. shares at essentially half the price.
Schnatter could of course associate with Peltz or the board of directors with an agreement from Wendy's likely to satisfy everyone. For example, Schnatter allegedly wanted to know how many seats on the board of directors he would control if Wendy's combined the two companies. But with sniping on both sides, it's hard to see how they'll be able to overcome the chasm they've created and reach an agreement that could benefit all shareholders.
Rich Duprey has no position in the mentioned actions. The Motley Fool is a short part of Papa John's International. Motley Fool has a disclosure policy.
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