Papa John’s is in recovery mode after truce with estranged founder

Ending months of uncertainty, Papa John’s (PZZA) is finally coming out of the worst phase in its history, when the controversy involving founder John Schnatter triggered a crisis that took a heavy toll on the fast food chain. After a long-drawn tussle, the management this week reached a final settlement with the former chairman who made an unceremonious exit last year.

Setting the stage for Papa John’s to regain its lost glory, Schnatter agreed to withdraw his lawsuits against the company. Under the agreement, the management will work with him to find an independent director who is acceptable to both sides and not linked to Starboard Value, the activist investor that recently made an investment in the company against Schnatter’s will.

Schnatter will also resign from the board of directors and cancel his nomination seeking re-election to the board, besides withdrawing the two cases filed by him, on condition that the management appoints the independent director before this year’s shareholder meeting. In return, he will get full access to the books and records of the company.

Schnatter will resign from Papa John’s board of directors and cancel his nomination seeking re-election to the board

A high level of volatility prevailed when Schnatter was forced to step down from the top post after he made several controversial statements including those with racist tone. As he continued to dictate terms even after leaving, the management last month struck a deal with Starboard Value so as to have Schnatter’s shareholding reduced. The move came amid concerns that Schnatter, who is the largest shareholder, might take control of the company by raising his stake further.

Papa John’s slips to loss in Q4, misses estimates

The company slipped to a loss in the fourth quarter, reflecting the softening of sales at stores across the leading markets and higher expenses. The downturn was broad-based, with all business segments registering a decline. Last year, annual revenues witnessed a double-digit contraction that resulted in the company posting almost flat earnings.

Papa John’s had a rather unimpressive start to 2019, with the stock slipping to a two-year low in the early weeks of the year.  The shares gained 8% so far this year and continue to regain momentum. Currently, the stock is trading nearly 30% below the levels seen a year earlier.

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