Papa John Founder Offloads Nearly 2 Million Shares

By Alan McDonnell
Alan McDonnell
Alan McDonnell
November 6, 2019 Updated: November 6, 2019

Founder and former CEO of the Papa John’s pizza company, John Schnatter, has sold a significant slice of his stock in the company. The self-styled “Papa John” of the company, Schnatter, sold 1.9 million shares Wednesday valued at $107.5 million, and now owns approximately 9.2 percent of the company—meaning he is still the largest shareholder.

A C-suite clear-out, better than expected Q3 results, and positive same-store sales growth for the first time in 2 years sent shares climbing by over 7 percent in early trading on Wednesday before stabilizing at gains of around 4.7 percent. Papa John’s overall share price had risen by almost 44 percent before Wednesday’s jump.

In a statement on the executive board shake-up released on Wednesday, new company CEO Rob Lynch said the company will seek “to reestablish the superiority of our pizza with consumers across our various customer platforms.”

The share price improvements follow a torrid couple of years for the Papa John’s franchise, and an even more disappointing time for its founder.

Revenue at Papa John’s plummeted in late 2017 as Schnatter chose to enter the fray on the issue of NFL players taking a knee as the national anthem was being played. Due to negative feedback from certain market sectors and numerous media outlets, as well as a range of other factors, Papa John’s net income declined by as much as 40 percent.

It got worse from there for the founder. In a mid-2018 conference call with the Laundry Service marketing firm, Schnatter was said to have used the N-word as he attributed the use of the same N-word to Colonel Sanders. Schnatter has since repeatedly insisted that he is not a racist and that the sentence was part of a 55-minute conversation that was taken out of context. He said he used the example to outline how he was against racism. Nevertheless, Laundry Service quickly severed ties with Papa John’s and the incident was leaked to the media.

After Forbes asked him about the statements, he apologized unreservedly and resigned immediately. Schnatter later claimed that his comments were “misconstrued” and that the incident was used as leverage to remove him from the company, in an interview with Fox Business. He also said that the executive board at that time used, what he believes, was an unfortunate choice of words to stage a coup and oust him.

The board of directors subsequently adopted a “limited duration stockholder rights plan”—a so-called “poison-pill” provision. The plan was designed to prevent Schnatter and his affiliates and associates from retaking control of the company by becoming majority shareholders. If one individual were to acquire 15 percent of the company, or if Schnatter’s group were to acquire 31 percent between them, other shareholders were to be given the opportunity to acquire stock at half the price, effectively eliminating Schnatter’s hope of retaking the throne at the pizza giant.

In an extensive C-suite clear-out, the current CFO will leave the company in 2020, while the COO and Chief Marketing Officer will also leave. Outgoing CEO Steve Ritchie was recognized as a staunch Schnatter supporter, but was replaced by new company president and CEO Rob Lynch in August. Numerous commentators see these moves as a break with the old guard and a new beginning while retaining the Papa John’s brand.

Schnatter, however, has continued his attacks on how the company is being run. He points out that the company’s shares have still not even reached 70 percent of the $88 peak they enjoyed in 2016. In the interview with Fox Business, Schnatter said “I am the only person who can fix Papa John’s. You are not going to fix Papa John’s without Papa John.”

On the reason for selling his shares, Schnatter said: “I feel there’s no reason to be in the car when the car crashes—even when you love the car.”

Alan McDonnell
Alan McDonnell