Papa John’s International Inc., has taken legal action to try to prevent a takeover in the wake of the ouster of founder John Schnatter as chairman of the board of directors.
In an action known in the stock investment community as a “poison pill,” the board of directors has issued a plan that allows current shareholders to buy more shares at a discount in the event of a takeover attempt.
Media consensus is that the move is an attempt to prevent Schnatter, who together with other associates own more than 30 percent of Papa John’s shares, from taking over the company. Papa John’s management did not respond to a request for clarification.
Schnatter stepped down as chairman of the board earlier this month amid accusations that he used a racist epithet and graphic descriptions of the mistreatment of African Americans during a meeting with a media agency. Schnatter, who confirmed that he made the comments, later said his words were taken out of context and that Papa John’s board acted hastily in pushing him out.
Under the rights plan issued on Sunday, shareholders will be issued one right per share of Papa John’s stock that they own as of August 2, 2018 to purchase twice the value of common stock at essentially half the price. Those rights go into effect only if a person or group acquires 15 percent or more of common stock without the approval of Papa John’s board of directors. An exception is Schnatter and his group, whose ownership of more than 30 percent of shares is grandfathered in, but the rights go into effect if Schnatter’s group’s ownership hits 31 percent or more.
The rights would not apply to the person or group that triggers them with a takeover attempt.
The effect of a poison pill is to allow existing shareholders to profit quickly while diluting the shares of the person or group attempting the takeover, making the takeover much more expensive.
The rights plan expires on July 22, 2019.
“The adoption of the Rights Plan is intended to enable all Papa John’s stockholders to realize the full potential value of their investment in the company and 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,” Papa John’s board of directors said in a press release. It also indicated that the rules left open the opportunity for the board to consider takeover offers.
“In addition, the Rights Plan provides the Board of Directors with time to make informed decisions that are in the best long-term interests of Papa John’s and its stakeholders and does not deter Papa John’s Board of Directors from considering any offer that is fair and otherwise in the best interest of Papa John’s stockholders,” it said.
Papa John’s shares fell by 8.3 percent to $47.29 shortly after trading started Monday morning. The price peaked at just over $80 in August of last year and has tumbled in the wake of declining same-store sales and controversies related to Schnatter.
At the beginning of the year, he stepped down as CEO, but remained board chairman, following an outcry related to Schnatter’s comments in an earnings call in November in which he partially blamed declining sales on the NFL’s failure to end its players’ silent protests during the singing of the national anthem before games.
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