Dive Brief:
- Trian Fund Management, an activist hedge fund that owns a stake in Wendy’s, has reportedly pulled itself out of discussions to acquire Papa John’s, The Wall Street Journal reported Tuesday. Other bidders are reportedly still interested in taking a stake in the restaurant chain, but none are seeking to acquire the company outright. Bidding offers are due next week.
- Trian initially expressed interest in the world’s third largest pizza company in June and met with founder John Schnatter. The next month, however, Schnatter stepped down as chairman after reports leaked that he used racist language during a marketing call.
- The company’s sales have been in a free fall since, with its most recent Q3 comps down nearly 10%, and Q2 comps down about 10.5%.
Dive Insight:
Trian was reportedly the first company to pursue Papa John’s, even before Schnatter’s much-publicized removal. It was an interesting proposition on paper — Trian’s ownership in Wendy’s and the addition of Papa John’s could set up a multi-segmented company similar to Yum Brands.
Despite Papa John's CEO Steve Ritchie’s Q3 pitch that improvements have been made on consumer sentiment — thanks in large part to a marketing makeover that swapped Schnatter for frontline employees — sales haven’t made much improvement at all. Some may even consider the pace to be painfully slow when considering how much money the brand spent during Q3 to repair its reputation.
According to CNBC, the company spent $3.6 million just to scrub Schnatter’s image from its marketing materials and $9.9 million to assist its franchisees by reducing royalty fees and contributing to store remodeling. The company expects to tack on between $25 million and $35 million in Q4 to continue these recovery efforts. That’s a lot of money for not a lot of progress.
And though no clear reason has been reported for Trian’s withdrawal, the company’s continued drama with its founder has been a much-publicized distraction. Schnatter owns 30% of the company and has launched his own website, savepapajohns.com. If there is a sliver of optimism for the company, it’s that Schnatter hasn’t updated the site since Aug. 31.
Trian’s withdrawal doesn’t negate the possibility of another bidder stepping up, and the Wall Street Journal noted that several private equity firms are still interested in partial stakes. This picture will become crystal clear next week when binding offers are due.
Following the Trian news, stock prices fell 10.2% on the day. That may actually keep Papa John’s investment hopes alive, as bidders often prefer to buy low. But in order for them to get any type of return, Papa John’s needs to show some growth potential. That’s hard to do when the company is stuck in recovery mode.
