Papa John’s founder fights ‘poison pill’ used to keep him out
A couple of weeks ago, Papa John’s founder John Schnatter resigned as chairman after reportedly using the N-word during a company conference call in May. He has since apologized for the slur and said that stepping down was a mistake; he was pressured to do so by board members he feels were acting on “rumor and innuendo.”
In response, the board adopted a “poison pill” strategy to keep Schnatter, who is still a member of the board, from gaining additional influence at the company. Schnatter is Papa John’s largest shareholder, owning 30 percent of shares, and he seems intent on staying involved. However, Forbes has detailed a long-standing pattern of inappropriate conduct by Schnatter and other executives.
The “poison pill” is the name for a business tactic that is more typically used to prevent hostile takeovers by rivals or activist investors. Poison pills simply limit the amount of stock any single investor or investor group can own without board approval. In this case, the board hopes to prevent Schnatter from gaining more influence by buying a majority share of the stock.
In this case, the poison pill takes effect if Schnatter and his affiliates increase their total stake to 31 percent, or if any other investor buys 15 percent of Papa John’s common stock without board approval. Should either of those events occur, the board would allow other shareholders to purchase stock at a discount in order to dilute its value. The poison pill provision expires in a year, which the company says is meant to give the board time “to make informed decisions” about possible buyout offers.
After the racial slur incident, the company has said that it will remove Schnatter’s image from the company’s marketing materials. It also evicted Schnatter from space he was subleasing at the company’s headquarters in Louisville, Kentucky. He has also been asked to stop speaking publicly about the company.
A lawyer for Schnatter told reporters that he “is not going to go quietly into the night.”
Schnatter stepped away from the company several years ago, but within three years he was back in charge, according to NPR. Last November, Schnatter asserted that national anthem protests by NFL players were hurting his business — a comment that sent share prices and franchise sales plummeting. The comment, in part, cost him his CEO title.
It’s difficult to say whether Schnatter can get around the board’s poison pill. Forbes writer Noah Kirsch told NPR, however, that virtually all of his sources expect Schnatter to retain influence at the company due to its current leadership structure and executives’ apparent loyalty to their founder.
