The Papa John’s takeover talks are heating up. Shares of the pizza chain rose 8.3 percent in after-hours trading October 8 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.
However, The WSJ said Trian is just one of several parties to express interest since Papa John’s put itself up for sale in September. The source said there are “several other potential bidders … including companies and private-equity firms.”
Trian is no stranger to the space. The fund owns a roughly 13 percent stake in Wendy’s and has three seats on the chain’s board. Also, Nelson Peltz, Trian’s co-founder and Wendy’s chairman, invited Papa John’s beleaguered owner John 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.
One of the issues muddying a possible sale, though, has been Schnatter’s continued involvement with Papa John’s. He remains on the board and owns roughly 30 percent of its shares. His repeated criticism of management and public statements stymied some of Papa John’s efforts to move on. This includes removing him from marketing materials and launching an employee-focused campaign called “Voices.” There was also a report from AdAge that Papa John’s was thinking about dropping the apostrophe from its name and designing a new logo, possibly in an effort to show the 5,000-plus-unit brand wasn’t owned by Papa John himself.
Given Peltz’s past interaction with Schnatter and the company’s reputation working with the management of struggling companies, Trian could be one fund that doesn’t balk at the prospect. Per The WSJ, Schnatter brought Papa John’s then-CDO Timothy C. O’Hern to the June meeting, not current-CEO Steve Ritchie. They flew by helicopter to meet Wendy’s CEO Todd Penegor at a private airport in Columbus, Ohio, The WSJ said. Schnatter asked how many seats he would have on the board of a combined company, the source noted.
O’Hern informed Papa John’s on September 5 that he was retiring, effective immediately. O’Hern, who started with the pizza chain in 1995, is still a Papa John’s franchisee, owning and operating nine U.S. locations. O’Hern has also been tagged as “a central figure in the Schnatter orbit” by Forbes.
If Trian proceeds, Wendy’s could acquire the pizza chain or Trian could and operate it separately. It’s not clear which would happen if a deal does indeed take place, The WSJ said.
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.
Roark’s purchase in 2011 for $430 million was for 81.5 percent of Arby’s, which left the Wendy’s/Arby’s Group with an 18.5 percent share in the company. Wendy’s declined to participate in Arby’s purchase of Buffalo Wild Wings, saying at the time it would rather reserve its cash for investments related to the Wendy’s brand. This took its 18.5 percent interest down to 12.3 percent. Wendy’s announced August 16 that it accepted an offer from Inspire Brands, the newly named owner of Arby’s, Buffalo Wild Wings, and fast casual R Taco, to sell its 12.3 percent ownership interest back to the company for $450 million.
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