Report: Ousted Papa John's CEO Wanted To Merge With Wendy's

Recently ousted Papa John's Int'l, Inc. PZZA CEO John Schnatter reportedly held merger talks with burger fast food chain Wendys Co WEN, The Wall Street Journal reported Wednesday.

What Happened

Talks between the company Schnatter founded and Wendy's were in preliminary stages, but talks between the two restaurant chains have cooled since Schnatter's departure, sources familiar with the matter told WSJ. The rationale for a merger from Wendys' point of view is unclear given the company's narrowed focus over the past few years on simplifying its operations, which resulted in 21 consecutive quarters of same-store sales gains.

Nevertheless, merger talks shouldn't come as a surprise, as Trian Fund Management, an activist hedge fund with large exposure to the food space, owns a 13-percent stake in the burger chain, WSJ said. Trian co-founder Peter May and partner Matthew Peltz sit on the Wendy's board, and Trian co-founder Nelson Peltz has been chairman since 2007.

Why It's Important

Trian has been looking to gain exposure to the pizza segment of the restaurant industry and Papa John's was considered a suitable target, Nomura's restaurant analyst Mark Kalinowski told the New York Post. The rationale behind a potential deal is that Peltz sees an opportunity for Papa John's to gain market share at the expense of "weaker competitors," Kalinowski said. 

What's Next

Papa John's' stock closed higher by 4 percent Wednesday but was trading lower by more than 1 percent premarket Thursday.

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