Papa John’s founder agrees to quit board and drop lawsuit

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 company’s stock climbed 5% on Tuesday to $45.56 a share.

Schnatter said in an emailed statement that he was thankful to be “able to resolve these important issues” and “focus on the company’s business.”

The settlement comes about a month after the pizza chain landed a $200-million cash infusion from activist hedge fund Starboard Value, which put its chief executive, 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, which worsened last summer after the founder used a racial slur on a conference call. Schnatter said his 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 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 arugula, spinach and roasted red peppers as toppings, according to CEO Steve Ritchie.

“I’m happy,” Schnatter said, “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.”