Papa John’s is going through even more upheaval as the fight between the company and its controversial founder intensifies. John Schnatter, the founder of the pizza chain, has been in trouble for his public gaffes that have caused the company a lot of embarrassment, and, more importantly, a loss of reputation that has hurt its stocks.
Thanks to his inappropriate remarks during the NFL, Schnatter was forced to resign from the position of Chief Executive Officer in December 2017. He still continued as the company’s face, spokesman and Chairman till earlier this month. Once again, Schnatter made some really offensive remarks, because of which he lost his role as Chairman and the board took steps to remove him as the face of the company too. The board has also hired a law firm to manage an investigation into the company’s policies as well as systems related to diversity and inclusion.
Despite all these steps being taken by other members of the board, Schnatter still continues to have a seat on the board of his own company though.
However, that may be changing now. According to Bloomberg, an internal source (who does not wish to be identified since these matters are private) said that Schnatter is determined to hold on to his seat on the board, despite the fact that the company wants to distance itself from him. The source also said that Schnatter wanted to be involved in helping the company’s turnaround as the pizza chain’s sales slump.
According to the news report by CNBC, pizza chain Papa John’s shares dropped as much as 8% after its board announced that it was going execute a poison pill stock dilution plan to prevent founder and former CEO and Chairman, John Schnatter, from acquiring a bigger stake in the company. The company would rather take a hit on its valuation that allow Schnatter to continue with Papa John’s.
The company’s shares had already fallen 6% after Schnatter’s most recent faux pas and resignation. They did rise once again after rumors were floated that Schnatter was holding merger talks with burger chain Wendy’s. However, now, the company’s shares have plunged once more with news of what the board wants to do.
According to Bloomberg’s internal source, Schnatter is worried that his company’s board is planning a special shareholders’ meeting so that they can vote him off the board.
The shareholders’ meeting is necessary since the board cannot simply remove the majority stakeholder without the entire community voting against him. The former head of the company is the majority stakeholder, with a 29% stake in its stocks. The challenge is that the next scheduled stakeholder meeting isn’t till early next year in spring.
According to one of his attorneys, Patricia Glaser, Schnatter is actually being made a scapegoat. She said that despite all the brouhaha, the founder of the company had some very strong ideas on how to turn the company around and that these ideas have been discussed within the company for some time now.
It seems Schnatter also regrets resigning his post as Chairman of the board and believes that the other directors mishandled the situation by throwing him out before they had carried out a full investigation.
For Stifel analyst, Chris O’Cull, this public drama is just bad news for the already struggling company. O’Cull downgraded Papa John’s rating from “hold” to “sell”, and noted that the recent controversy had caused a lot of brand damage, which could prevent a “strategic savior” from launching a takeover.
According to Reuters’ Eikon Social Media Monitor, the last few months had seen strongly positive sentiment towards the pizza chain. However, after the July mishap, that sentiment has turned decidedly negative.