Starboard buys $200 million stake in Papa John's, shares jump 9 percent
Reuters
Published Feb 04, 2019 10:42AM ET
Starboard buys $200 million stake in Papa John's, shares jump 9 percent
By Svea Herbst-Bayliss and Uday Sampath Kumar
(Reuters) - Hedge fund Starboard Value LP has taken a $200 million stake in Papa John's International Inc after the No. 3 U.S. pizza chain rejected a similar offer from the company's founder, John Schnatter, according to the company and a regulatory filing.
Papa John's shares, which have tumbled nearly 40 percent in the last 52 weeks, jumped 9 percent to $42 on Monday.
Starboard co-founder Jeffrey Smith will become the pizza chain's board chairman and Anthony Sanfilippo, former chairman and chief executive officer of Pinnacle Entertainment, will join as an independent director.
Papa John's CEO Steve Ritchie, who took over the top job on Jan. 1,2018, will also join the board. Schnatter, who was fired as the company's chief spokesman last year, also sits on the board. He is considering a lawsuit over the Starboard investment, according to the filing.
Starboard's Smith has earned a reputation as a savvy investor with restaurant credentials after the firm, in a boardroom coup, replaced all directors at Darden Restaurants Inc (NYSE:DRI) in 2014.
For months, Papa John's has suffered declining same-store sales and was dropped as the official pizza provider of the National Football League a year ago after Schnatter suggested that player protests during the national anthem were partly responsible for declining sales.
Schnatter, who owns about 30 percent of the company, resigned as chairman in July after Forbes reported that he used a racial slur on a media training conference call. He was also dropped as chief spokesman and the company removed his picture from its pizza boxes.
Papa John's agreement with Starboard marked a change for the activist investment firm that often initiates a push for improvements by threatening a proxy contest.
Amid the wrangling, Schnatter offered over the weekend to make a $250 million investment "on terms that were substantially similar to, but superior to, the Starboard transaction," he said in a filing on Monday.
Starboard has an option to invest an additional $50 million through March 29, 2019.
Starboard was one of only a handful of activist hedge funds to make money last year when it returned 1.7 percent, compared to an 11.3 percent loss for the average activist hedge fund,
Papa John's says it intends to use about half the proceeds to repay debt.
Reuters reported on Friday that Papa John's was seeking to sell a stake in the company after acquisition offers from private equity firms did not meet its valuation expectations.
The agreement with Starboard was in the best interests of shareholders following an evaluation of a wide range of strategic options, Papa John's said.
Get The News You Want
Papa John's expects systemwide North America same-restaurant sales fell 8.1 percent in the fourth quarter and full-year profit was at the lower end of its previous forecast.
Sales have been falling for over a year as the company battles for market share with larger rival Domino's Pizza and Yum Brands' Pizza Hut.
Papa John's is spending heavily on revamping its advertising and brand to counter the bad publicity following the Schnatter controversy.
Schnatter has been seeking internal documents to try to show the company was mismanaged and to determine if he was improperly pushed out.
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.