One of the biggest news items in the markets came from Papa John’s. Unfortunately, PZZA stock made headlines for all the wrong reasons. Shares of the embattled organization took a nearly 9% dive after management failed to reach terms with potential suitors.
That the negotiations failed is unsurprising. First off, the Papa John’s brand is damaged goods. In late 2017, company founder and former CEO John Schnatter made politically-charged comments about NFL players protesting police brutality. Later, he made the ultimate blunder when he uttered the “N-word” during a conference call.
Second, private-equity firms hoping to buy out Papa John’s have no reason to negotiate generous terms. While PZZA stock recovered (somewhat miraculously) against the racism overhang, shares eventually unraveled last November. Over the trailing two-and-a-half months, PZZA lost nearly 35% of market value.
Papa John’s management team wanted more money for an outright acquisition. However, they’re not going to get it while the company equity is in freefall. Having not agreed to terms, the leadership now intends to sell a stake in itself. But even here, they’ll run into the same problem.
Observes have witnessed the outright collapse that the famous-turned-infamous pizza maker has endured. They’ll simply wait out the company for a better deal. But within this terrible situation, we at least can acquire an important business decision.
Papa John’s is a Lesson in Not Arming Your Adversary
From the beginning of the controversy, Papa John’s founder has claimed that another side to the story exists. On Schnatter’s personal website, he stated that “we are getting the truth out there.”
Great, but what does that mean? Is Schnatter implying that he didn’t utter the “N-word?” If so, I can see why he’s upset about the smear campaign. However, the only problem here – and it’s a big one – is that Schnatter doesn’t deny using the racial slur. Instead, his point appears that we’re missing the broader context.
And yes, I’m positive that we’re not getting the entire context. Unfortunately, no justification exists to utter such vile profanities in business. Within a professional organization, and certainly in a publicly-traded firm, protocol and proper decorum matters. If an executive generates a controversy, that action negatively impacts stakeholders.
I don’t believe that Schnatter is a racist. Further, he may also have had good intentions when he said what he said. But the problem is that the Papa John’s founder gave his adversaries political and professional ammunition. That’s a big no-no, and it represents a lesson we must all learn.
Again, Schnatter is probably right: we’re not getting the whole truth. But he made it a point so that the learning the truth won’t matter. Schnatter not only armed his opponents, but he pointed the gun to his own head. All anybody has to do is pull the trigger.
Unfortunately, this was just a stupid mistake all around. Why Schnatter chose to say the “N-word” at that moment we may never know. But let this be a lesson to not commit unforced errors, especially ones so damaging and unnecessary.