Starboard Value Takes $200M Slice Of Papa John's

Activist investor Jeffrey Smith and his fund Starboard Value has taken a stake in troubled pizza chain Papa John's Int'l, Inc. PZZA.

What Happened

Papa John's founder John Schnatter resigned as chairman in mid-2018 after stepping down as CEO in reaction to reports he used racist language in a conference call with the company's marketing agency. Since Schnatter's resignation from day-to-day responsibilities, there have been multiple M&A rumors and reports of activist investors looking to take a stake.

The Wall Street Journal reported Starboard Value made a $200 million investment in Papa John's with an option to buy another $50 million stake in the future. As part of the investment, Smith was named chairman of Papa John's.

Former chairman and CEO of Pinnacle Entertainment Anthony Sanfilippo, along with Papa John's current CEO Steve Ritchie were also named as directors.

Why It's Important

Olivia Kirtley, a member of Papa John's special committee that was tasked with studying Starboard's involvement, said in a statement the company's new relationship with Starboard is intended to "better position Papa John's for growth, improve the company's financial performance and serve the best interests of our stakeholders."

Starboard Value has seen prior success in the restaurant industry. In 2014, the activist investor replaced the entire Darden Restaurants, Inc. DRI board; The stock has more than doubled in value.

What's Next

Papa John's intends to use its new investment to pay down debt and invest in the business. It remains unclear what role Schnatter will play in the future of the company he founded given his current ownership stake of around 30 percent.

Papa John's traded 4.8 percent higher to $40.37 in Monday's pre-market session.

Related Links:

Lessons On Activist Investing From Starboard Value's Jeffrey Smith

A Detailed Review Of Starboard Value's Stock Portfolio