Food & Beverage

Papa John's share repurchase to give Starboard 9.5% of common stock

Photo: iStock.

May 12, 2021

Papa John's International Inc. has made a deal with Starboard Value LP, and some of its affiliates, to repurchase and convert all shares of Papa John's Series B Convertible Preferred Stock owned by Starboard in a transaction expected to close on May 13 this week, according to a news release.

The preferred shares, which Starboard acquired in Q1 2019 as part of a $250 million investment in Papa John's, carried a preferential cumulative dividend payable in cash at a rate of 3.6% per annum, as well as pass-through common dividends, for a total yield of approximately 5.4%. The shares represented approximately 13.2% of Papa John's outstanding common stock on an as-converted basis, and were convertible at Starboard's option at any time into shares of common stock based on a conversion price of $50.06.

Now, Papa John's will buy back 31% of the outstanding preferred shares (1.6 million shares of common stock on an as-converted basis) and Starboard will convert its remaining preferred shares into approximately 3.5 million shares of Papa John's common stock. Both actions will occur in return for a one-time payment of $183.9 million, based on a negotiated discount to the estimated fair value of Starboard's preferred shares. Following the transaction, Starboard will beneficially own approximately 9.5% of Papa John's outstanding shares of common stock, while Starboard CEO Jeff Smith will remain chair of Papa John's board.

"Since Starboard's investment in early 2019, Papa John's has returned to growth, reflecting the strength of our culture, innovation and operations," Papa John's President and CEO Rob Lynch said in the release. "Starboard and Jeff's support and leadership have been instrumental to this progress and I am thrilled to continue our partnership.

"Looking ahead, with the foundations of our business stronger than ever, we are now able to use our strong financial position to simplify and optimize our capital structure, supporting our long-term earnings growth and continued value creation for our shareholders."

As a result of the repurchase and conversion, Papa John's fully diluted common stock share count will increase by approximately 3.5 million shares and Starboard's 3.6% preferential dividend on the preferred shares, which amounted to $9 million in fiscal 2020, will be eliminated. Also, in the second quarter of fiscal 2021, Papa John's will record a reduction to net income attributable to common shareholders of approximately $110 million as a one-time charge to equity. Assuming no further common shares are issued or repurchased, this would result in a reduction of approximately $3 per diluted share in the second fiscal quarter of 2021.

Papa John's, based in Louisville, Kentucky, has more than 5,400 restaurants in 50 countries and territories.