Papa John’s International Inc. (NASDAQ: PZZA) is rolling in dough after receiving a $200 million investment from hedge fund Starboard Value. In the deal’s announcement, the hedge fund’s CEO Jeffrey C. Smith said, “Papa John’s has always stood for higher-quality pizza, and we believe Papa John’s has a strong foundation, with the best product in the space and a strong franchisee and customer base. We see tremendous potential for the company both in the US and internationally.”
Shareholders showed approval for the investment by sending the stock up almost 9 percent after the announcement. One person that does not seem to be pleased with the investment deal is John Schnatter, who founded the company in 1984. A filing with the Securities and Exchange Commission shows that Schnatter is considering legal action against Papa John’s for turning down his $250 million counteroffer to Starboard’s proposal.
As part of the deal, Smith has been named the chairman of Papa John’s. Schnatter was removed as chairman in July 2018 after reports emerged that he used the N-word when speaking to a marketing team during a call. The deal also dilutes Schnatter’s stock in the company from 31.1 percent to about 26 percent.
While Schnatter is still on the board, the deal weakens his voice by adding a total of three new directors. Steve Ritchie, who became CEO in December 2017 after Schnatter was dismissed from the role, has also been appointed to the board. Anthony Sanfilippo, former chairman and CEO of casino operator Pinnacle Entertainment, is the third new board member.
There had been a speculation in recent months that a private-equity takeover of Papa John’s could be imminent. Previous attempts to sell the company were stymied by potential buyers’ hesitation over the size of Schnatter’s stake in the company. A sales process could have a better chance of success if Schnatter owns a smaller stake.