A major potential bidder for Papa John’s International Inc. has taken itself out of the running, putting pressure on the pizza maker to figure out its future.
Trian Fund Management LP, which was evaluating a bid, has decided not to pursue it, according to people familiar with the matter.
Papa John’s is in the midst of a sale process that began in August. While some bidders remain interested in potentially taking a stake, none is currently considering buying the whole company, these people said. Binding offers are due next week, they said.
Trian, an activist hedge fund that owns a stake in Wendy’s Co., had initially expressed interest in Papa John’s in late June and invited company founder John Schnatter to meet with leaders of the burger chain. A month later Mr. Schnatter stepped down as chairman after reports leaked that he had used a racial slur during a company marketing call.
In August Papa John’s hired investment banks to conduct a strategic review of its business, which could include a sale. After The Wall Street Journal in October reported that Trian resumed interest in a possible deal and that other buyers were also interested, Papa John’s stock shot up nearly 9% and has been rising ever since on the expectation that a deal is forthcoming. The higher stock price, however, could discourage some bidders.
The company continues to face challenges, having reported four consecutive quarters of declining same-store sales.
The chain’s problems began more than a year ago when Mr. Schnatter made comments during an earnings call that many customers construed as racist. Last November he defied the board and publicly blamed slowing sales growth on the National Football League’s handling of its players’ national anthem protests. The chain lost numerous customers as a result and Mr. Schnatter agreed to step down as CEO last December and step away from public appearances for a while.
During a May conference call that was intended to prepare him for a return to marketing events, he said the N-word. After news of that leaked in July, he stepped down as chairman and the company began to distance itself from him by barring him from appearing in marketing and adopting a poison pill to prevent him from gaining control of the company. Mr. Schnatter remains on the board and owns nearly 31% of the stock.
Papa John’s has been trying to help struggling franchisees by reducing royalty fees and contributing to store remodeling. Activist shareholder Legion Partners Asset Management LLC, which is working with the California State Teachers’ Retirement System and disclosed a combined 5.5% stake in Papa John’s last month, has spoken with the company about adding board members with restaurant experience, restoring the morale of franchisees and employees and cutting costs.
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