The Board of Directors at Papa Johns (NASDAQ:PZZA) is looking to keep founder John Schnatter from taking control of the company.
This new strategy from Papa Johns has it putting a “limited duration stockholder rights plan” into place. The plan will start on Aug. 2, 2018 and will end on July 22, 2019. PZZA notes that it is enacting this plan to protect the rights of its shareholders and the best interest of the company.
The strategy that Papa Johns is using will have the company diluting the value of its shares if anyone tries to take a controlling interest without making a deal with the company. It notes that this includes any organization seeking a 15% stake in the company.
There’s a special bit of wording in there specifically for Papa John’s founder John Schnatter. If he, or his associates, attempt to take control of 31% of the company, the dilution of shares will go into effect. Schnatter and his allies currently control 30% of PZZA shares.
The idea behind this plan is that Papa John’s will dilute the value of its shares to prevent a takeover. Doing so is harmful to the company, but also hurts the voting rights and can fend off a takeover attempt. This is called a “poison pill” strategy.
Papa John’s decision to adopt this poison pill strategy comes after Schnatter retired as its CEO. The issue has to do with his use of the “N” word during a conference call. However, it looks like the company is now expecting the founder to try and take back control.
PZZA stock was down 10% as of Monday afternoon.
As of this writing, William White did not hold a position in any of the aforementioned securities.