News

Papa John's board acts to safeguard company from founder's takeover

July 24, 2018

Papa John's board has adopted a limited duration stockholder rights plan, sometimes referred to as a "poison pill" defense strategy, to safeguard control of the company from embattled founder and former CEO John Schnatter.

The plan, put into action this past Sunday, has a dividend distribution of one right for each outstanding share of common stock to be distributed Aug. 2, with the action set to expire July 22, 2019, according to a press release.

The plan reduces the chance that any one person or group can gain control of the company by buying up stock without paying an appropriate control premium. The the action was most likely taken to reduce the chance that Schnatter could gain controlling interest of the pizza chain. 

Papa John's board has increasingly distanced the company from Schnatter since news first broke he used denigrating terms to refer to African-Americans on a media training call in May. He resigned his board chairmanship earlier this month, and resigned his CEO position last October following statements he made essentially blaming the company's NFL affiliation for its flagging sales.  

The newly-enacted Rights Plan doesn't prevent the board from considering a fair offer of ownership that would be deemed in stockholders' best interest, but affords the governing body more time to make decisions about the company. 

The Rights Plan is only acted upon if a person  or group acquires beneficial ownership 15 percent or more of Papa John's common stock in a transaction not approved by the board. In such an event, all stockholders, aside from the person or group in question, has the right to buy a number of shares of common stock having a market value of twice such price, according to the release. 

If the company merges or is acquired after a group or a person has bought 15 percent or more of common stock, each stockholder would have the right to buy "a number of shares of common stock of the acquiring person having a market value of twice such price." However, the  person or group that triggered the Rights Plan wouldn't be able to do the same. 

The release stated Schnatter and associates own more than 30 percent of common stock. While they have been "grandfathered" under the Rights Plan, Schnatter and his associates will be considered "an acquiring person" upon their acquisition of 31 percent or more of outstanding shares of common stock.