Papa John’s enacts ‘poison pill’ to stop Schnatter hostile takeover

Papa John’s Pizza shares plunged in trading Monday as the embattled chain’s board of directors took special measures to stave off a potential takeover bid from ousted founder and company namesake John Schnatter.

The “poison pill” measure will prevent any entity from acquiring more than 15% of Papa John’s common stock without approval from the board of directors. The provision will expire after one year, the company said in a press release.

The move is designed to prevent Schnatter, the company’s largest individual shareholder, from acquiring a larger stake than the roughly 30% of shares he already owns. Schnatter resigned as company chairman after he admitted using a racial slur during a May conference call with marketing executives, but has vowed to fight any effort to remove him from the board of directors entirely.

Papa John’s said the plan was meant to “protect the interests of the company and its stockholders by reducing the likelihood that any person or group gains control of Papa John’s through open market accumulation or other tactics without paying an appropriate control premium.

The company’s stock was down nearly 9% in trading as of early Monday afternoon as Wall Street reacted to the looming battle between Schnatter and the board of directors.

Wendy’s reportedly engaged in talks with Schnatter before his ouster on a potential acquisition bid for the struggling pizza chain, which has lost market share to rivals Pizza Hut and Domino’s in recent months. Both Wendy’s and Papa John’s declined to comment on the talks.

Research firm Stifel cut its rating for Papa John’s stock to sell, arguing that Papa John’s “[needs] a strategic savior but [is] struggling to find one willing to underwrite a transaction given the brand damage.”

Schnatter has accused marketing firm Laundry Service of attempting to extort him for $6 million in order to keep his use of a racial slur during a media training session from going public. Laundry Service strongly denied Schnatter’s accusations in an internal memo to staffers.

Schnatter owns more than nine million shares of Papa John’s stock.