Papa John’s founder John Schnatter wants to can the poison pill. He’s also been contacted by “several third parties” in regards to a possible strategic transaction or investment in the 5,000-plus unit pizza chain, according to a Securities and Exchange Commission filing released Monday morning.
In the filing, a letter from Schnatter to Papa John’s board of directors, dated October 18, asks the company’s fellow directors to respond by the close of business on October 23. If they do not, Schnatter said he reserves “all rights to take any action to ensure the company permits the shareholders to exercise their rights.”
At the heart of his complaint was the desire to “promptly amend the Poison Pill or otherwise render inapplicable the ‘Acting in Concert’ provisions of the Poison Pill.” In July, Papa John’s board of directors enacted a stockholders rights plan that was seen by some as a veiled attempt to block an acquisition by Schnatter. The so-called poison pill lays out conditions that will dilute the value of Papa John’s stocks should any party attempt to acquire 15 percent or more of common shares. Such an action would open the door for shareholders to purchase additional stocks at a discount, thus decreasing each individual share’s value.
A Papa John's spokesman shared the following statement via email with QSR, saying the plan prevents any potential investor or investors from taking control of the company without paying an appropriate premium:
"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," the statement said. "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 and his affiliates, according to the filing, own about 30.9 percent of the shares in the namesake brand and are therefore grandfathered into the stockholder rights plan. If Schnatter’s shares bump up to 31 percent or greater, he forfeits that exemption.
“As you know, no Delaware court ever has found that this type of ‘wolfpack’ provision in a poison pill is consistent with Delaware law. In fact, this provision goes far beyond Delaware law by unreasonably curtailing the rights and legitimate interests of shareholders,” Schnatter wrote. “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.”
Another reason Schnatter believes a prompt removal of this provision is important is, as he stated, “the special committee’s process to consider acquisition proposals or other strategic transactions,” which has “already elicited at least one potential investor.” He then follows by saying several third parties have “expressed an interest in speaking with me.”
The “acting in concert” provision, however, precludes Schnatter from discussing Papa John’s, his investment, and the activities or plans of potential investors or shareholders with third parties or anyone else with an interest in the company.
“I believe that preventing me from discussing such matters will lead to significant loss of value for all shareholders and is in plain contravention of your duties under Delaware law,” he wrote.
There’s no pinpointing exactly which investor he’s referring to. On October 8, shares of Papa John’s rose 8.3 percent on the stock market in after-hours trading following reports that activist hedge fund Trian Fund Management LP was evaluating a bid. The Wall Street Journal reported, according to people familiar with the matter, that the company contacted Papa John’s to collect information as it explores a possible takeover. This doesn’t guarantee Trian will make an offer or even that Papa John’s will be, in fact, sold. The fund owns a roughly 13 percent stake in Wendy’s and has three seats on the chain’s board. In 2011, Trian became Domino’s largest shareholder and tried to push management for changes. It then sold its stake the following year after the company refreshed its menu and marketing materials. Trian bought Wendy’s in 2008 for $2.3 billion and combined it with Arby’s through holding company Triarc Cos.
Additionally, Nelson Peltz, Trian’s co-founder and Wendy’s chairman, reportedly invited Schnatter in June to meet the company’s leaders to discuss a possible deal, according to The WSJ. On that account, The Wall Street Journal reported the two companies held preliminary merger discussions, but the possibility fizzled following a July 11 report that Schnatter used a racial slur during an in-company conference call. Schnatter stepped down as executive chairman at the time. He exited as CEO last December following his controversial NFL comments over anthem protests.
Schnatter said in the letter that the current provision is preventing shareholders to communicate their concerns about Papa John’s “freely and effectively at this critical time.”
He once again criticized management as well. “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—aprovide customers with better ingredients and better pizza,” he said. “The board must cease this ongoing infringement on shareholders’ rights through an amendment to the Poison Pill making clear that the Board has no authority to preclude its shareholders from conversing freely and fully regarding the company, the issues the company faces and the company’s future.”
Papa John’s unveiled a new organizational structure October 12. That company announced newly dedicated roles and responsibilities around each consumer touch point that would report to Mike Nettles. Formerly SVP, chief information and digital officer, Nettles is stepping into a position as executive vice president, chief operating and growth officer.
Among the changes:
Justin Falciola was promoted to senior vice president, chief analytics and technology officer. Falciola most recently served as vice president, global enterprise architecture.
Anne Fischer was promoted to senior vice president, customer experience. Fischer most recently served as vice president, product management.
Paul Fabre was promoted to senior vice president, menu strategy and innovation. Fabre most recently served as vice president, R&D and quality assurance.
Melissa Richards-Person was promoted to senior vice president, chief brand officer. Richards-Person most recently served as vice president, global brand strategy and consumer connections.
Papa John's said the moves would help “improve the experience that customers have with Papa John’s and accelerate growth.”
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