Papa John’s founder to quit board, drop suit in settlement

Papa John’s has just charted a path forward without Papa John.

Embattled pizza chain Papa John’s International Inc. said founder John Schnatter will resign from the board, bringing to a close months of tension in the management ranks.

Schnatter, who still owns almost one-third of the shares, will help the company identify a mutually acceptable independent director to take his place, the company said Tuesday in a filing. The founder also agreed to dismiss a Delaware lawsuit related to his exit from the chairman’s seat. His term as director will expire at the 2019 annual meeting or when the independent director is appointed, whichever comes first.

The shares rose as much as 3.6 percent in Tuesday trading before paring gains.

Schnatter said in an emailed statement that he’s thankful to be “able to resolve these important issues.” He said the board’s willingness to remove the “acting in concert” provision from the poison pill plan that made it hard for him to talk to—or plan a takeover bid with—other shareholders was key to his decision to dismiss the lawsuit. Now “we can all focus on the company’s business without the need for additional litigation,” he said.

The settlement comes about a month after the pizza chain landed a $200 million cash infusion from activist hedge fund Starboard Value LP, which put its chief executive officer, Jeff Smith, in charge of Papa John’s. Under Smith’s guidance, Papa John’s is planning new marketing to help reverse a sales slump that worsened last summer after the founder used a racial slur on a conference call. He has said the comment was taken out of context.

Tensions at the company have been high for months. Schnatter sued the chain last year, demanding internal files related to directors’ handling of his ouster as chairman. The Delaware Chancery Court in January ruled that he could get access to some of those materials.

As recently as last month, it had appeared Schnatter wasn’t going to release his grip on the company without a fight. Starboard’s cash infusion came after the Papa John’s board, which had been evaluating strategic options, including potentially seeking a buyer, turned down a similar investment deal from Schnatter himself.

But as its biggest shareholder, Schnatter himself will benefit if Starboard successfully turns the slumping chain around. In addition to the new ads, Papa John’s is trying to evolve with consumer tastes. For example, it has started to cater to more sophisticated pizza preferences by offering toppings like arugula, spinach and roasted red peppers, according to Chief Executive Officer Steve Ritchie.

“I’m happy that we were able to enter into this agreement and allow the new leadership being implemented by Jeff Smith and Starboard to help Papa John’s regain its strength and market position,” Schnatter said.