Editor's Note: The research update below was originally published on 7/24/18.
We are removing Papa John’s (PZZA) from the Hedgeye Restaurants Best Ideas list as a LONG
HEDGEYE OPINION
Yesterday the PZZA Board of Directors approved the adoption of a limited duration stockholder rights plan, commonly known as a poison pill. Although this does not definitively prevent them from getting taken out by a strategic or private equity buyer, it does limit their options.
Under the plan, John Schnatter and his affiliates cannot raise their stake to 31% (at 30% now). It also prevents anyone from buying a 15% stake without Board approval, effectively taking out the activist option.
This move by the company just dug a deeper and wider moat around them and made a difficult situation even more difficult.
Between the now limited options for an exit opportunity and the ongoing brand risk given its deep-rooted association with John Schnatter (Papa John), we are removing PZZA from our Best Ideas list as a LONG.
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