Papa John’s Adopts ‘Poison Pill’ Defense Against Schnatter

Posted July 23, 2018 5:47 p.m. EDT
Updated July 23, 2018 5:52 p.m. EDT

Papa John’s is preparing for a fight against John Schnatter, the pizza chain’s founder and former chairman, by adopting a so-called poison pill defense to protect itself against a hostile takeover attempt.

The plan, announced late Sunday by the company’s board, is meant to prevent any shareholder from amassing a controlling interest in Papa John’s. Schnatter, who resigned as chairman this month after a report that he had used a racial slur in a comment about black people, owns 30 percent of the company’s stock, making him its largest shareholder.

Schnatter has said since stepping down that doing so “was a mistake” and that he was pressured to leave by board members acting on “rumor and innuendo.”

The poison pill strategy — which has been used by, among others, Avis, Netflix and Sotheby’s, and in a battle between Men’s Wearhouse and Jos. A. Bank — is typically employed to fend off takeover efforts by activist investors and acquisitive rivals. It has rarely been used to pre-emptively rebuff a company founder, one notable exception being the poison pill that American Apparel adopted in 2014 amid an acrimonious split with its founder, Dov Charney.

Relations between Schnatter and the Papa John’s board, on which he still sits, have soured in a similar fashion since his comment was first reported by Forbes.

The company said it would remove Schnatter’s image from the marketing materials it frequently adorned over the years. He was also evicted from subleased office space at the corporate headquarters in Louisville, Kentucky, and was asked to stop speaking publicly about the business.

A lawyer for Schnatter, Patricia Glaser, said he “is not going to go quietly into the night.”

Glaser declined to comment on the poison pill move by Papa John’s, which would take effect if Schnatter and his affiliates raised their combined stake in the company to 31 percent or if anyone were to buy 15 percent of the common stock without the board’s approval.

Under those circumstances, Papa John’s would dilute the value of those shares by letting other shareholders buy stock at a discount. The company said Sunday that the provision, which expires in a year, would give the board time “to make informed decisions” and to consider possible buyout offers.

On Monday, Papa John’s stock fell 9.75 percent.