Schnatter to resign from Papa John’s board in settlement

John Schnatter | Courtesy of Papa John’s

Papa John’s International has agreed to a settlement with its founder, John H. Schnatter, who will resign from the board after he and the company find a mutually acceptable independent director, according to an SEC filing.

As part of the agreement, entered on Monday in Delaware, where the Louisville-based company is incorporated, Schnatter also agreed to dismiss his lawsuit against the company in the Court of Chancery of the State of Delaware as well as a subsequent suit filed regarding a lease in Jefferson County.

The settlement comes days after Schnatter submitted a letter nominating himself to the board at the company’s annual meeting.

The deal between the company and its eponymous founder appears to end 16 tumultuous months filled with acrimony, racial controversy, poison pills and slumping sales.

According to the filing, the founder and Papa John’s have come to an agreement over the composition of the board having to do with a governance agreement the company entered with a new investor, Starboard Value, in February. As part of that deal, Starboard agreed to infuse a minimum of $200 million into the chain and retain a seat on the board.

In its deal with Starboard, Papa John’s added three positions on its board, bringing total membership to nine. The new members are the Papa John’s president and chief executive, Steve Ritchie, Starboard CEO Jeffrey C. Smith and former Pinnacle Entertainment’s CEO Anthony M. Sanfilippo. Pinnacle Entertainment is a casino operator.

Terms of the settlement with Schnatter amend the company’s governance agreement with Starboard in part and add a board seat for the independent director. Schnatter owns about 31 percent of Papa John’s common stock with nearly 10 million shares, according to the filing.

The downfall of Schnatter, who founded the business and for much of its existence also served as the company’s face in advertising campaigns, began in late 2017, when he suggested that the NFL’s failure to stop players from kneeling during the national anthem had hurt the company’s sales. The company apologized for the comments, and announced in December 2017 that Schnatter would step down as CEO.

In July, while he was fighting to regain control of the company, Schnatter made headlines again after Forbes reported that he had used a racial slur on a conference call with a consultant. Late that month, the company’s board adopted a so-called poison pill to prevent its embattled founder from retaking control of the company.

Throughout the controversies, Papa John’s shares and sales have continued to suffer, while the company has incurred significant costs.

A week ago, the company said that because of “recent events” it had incurred special charges last year of more than $90 million related to, among other items, “re-imaging costs at nearly all domestic restaurants” as it removed Schnatter’s image from the company’s logo.

The company also said last week that it lost nearly $14 million last year, as revenue fell 20 percent compared to 2017.

Since August of 2017, Papa John’s shares have lost nearly half their value. Shares were set to open slightly higher Tuesday morning.

This story may be updated.