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Papa John's Gives Us a Poison Pill
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We haven't seen one in some time.  We saw them all the time in the era of mergers and acquisitions-- the 1980s.  But, we now have them back in the business news:  Poison Pills!  Papa John's Pizza is the company bringing back an old tool used to prevent takeovers of companies, a tool used by the target of a takeover effort.

 

The Papa John's poison pill journey began when John Schnattner, the founder of Papa John's, previously stepped down in December 2017 after he had a dust-up with the NFL over Papa John's role as an official NFL sponsor.  The dust-up related to Mr. Schnattner's position on players "taking a knee" during the national anthem at NFL games.  In May 2018, Forbes magazine reported that Mr.  Schnattner allegedly used a racial slur on a conference.  Mr. Schnattner, who owns 30% of the company's stock, says that he was forced to step down as chairman of the board.  His image was removed from all marketing materials and he was forced out of his office at the company's Louisville headquarters.

 

Although he stepped down as chairman, Mr. Schnattner feels that he was forced out because of rumors and innuendo and asked to be restored to his position as chairman.  When the board refused, Mr. Schnattner said that he would begin acquiring stock in the company so that he could regain his positions with the company.  He still holds a seat on the company board. His actions are known as a hostile takeover, meaning it is a takeover that is not sanctioned by the board. 

 

When the board heard of Mr. Schnattner's share acquisition plan, it adopted a poison pill.  The poison pill lasts for one year and takes effect if anyone acquires a 31% share of the company or anyone purchases 15% or more of the company's shares (without board approval).  If either of those events occurs, the board would allow shareholders to purchase stock at a discounted value.  The result would be a dilution in value of all Papa John's shares.  The stock market noticed and the shares fell 9.75% when the poison pill was created. Tiffany Hsu, "Papa John's Adopts 'Poison Pill" Defense Against Hostile Takeover by Its Founder," New...

 

The board issued a statement that said the poison pill would allow the board to take the time to make decisions about acquisitions by outsiders.  The impact of a poison pill is to make the shares less valuable to all, both existing shareholders and the outsider attempting acquisition. Its purpose is to make the acquisition look less attractive, so it is a means of self-preservation against acquisition. Poison pills were permitted in most states as part of anti-takeover legislation that was passed at the state level during the 1980s acquisition mania. 

 

DISCUSSION STARTERS

Explain what happened at Papa John's.

Discuss the reason for poison pills and their effects.