The corporate headquarters of Papa John's pizza located on its campus in Louisville, Kentucky, July 17, 2018. Papa John’s is adopting a shareholder rights plan as it looks to safeguard against its disgraced founder possibly attempting to take control of the pizza chain. Credit: Timothy D. Easley | AP

Papa John’s International’s board approved a so-called poison-pill plan to fend off any attempt by founder John Schnatter to gain a controlling interest as the pizza chain seeks distance from its controversial namesake.

Schnatter, 56, resigned as chairman earlier this month after reports surfaced that he used a racial slur and graphic depictions of violence against minorities during a conference call with a media agency in May. He admitted to using the offensive term and apologized, while saying his comments were taken out of context.

Shares of Papa John’s fell as much as 8.3 percent to $47.29 in New York Monday, the biggest intraday decline in more than two months.

Adopting the takeover defense is the latest effort by Louisville, Kentucky-based Papa John’s to loosen ties to the founder, who remains a director and owns a 29 percent stake that could be used to mount a challenge. Schnatter regrets resigning as chairman and believes directors mishandled the situation by pushing him out without investigating, people familiar with his thinking told Bloomberg News last week.

The board adopted a limited-duration stockholder rights plan that would become exercisable if an investor acquired 15 percent or more of Papa John’s shares without the approval of directors, according to a company statement late Sunday. It also declared a dividend distribution of one right for each outstanding share.

The rights plan is intended to “protect the interests of the company and its stockholders by reducing the likelihood that any person or group gains control of Papa John’s through open market accumulation or other tactics without paying an appropriate control premium,” the company said.

Papa John’s shares have lost more than a third of their value over the past year amid the controversies involving Schnatter, while same-store sales have fallen in recent quarters in the face of more competition from Domino’s Pizza Inc. and Yum! Brands Inc.’s Pizza Hut.

A committee of directors recently terminated an agreement that designated Schnatter as the face and voice of the brand and ordered that he be evicted from the headquarters and removed from marketing materials.

Late last year, Schnatter stepped down as chief executive officer of the pizza chain he started in his father’s Indiana tavern. He quit the post after criticizing the leadership of the National Football League for mishandling protests by players that he said hurt sales. In February, Papa John’s ended a longtime sponsorship of the NFL to instead focus on marketing with specific teams.

Forbes, citing 37 current and former Papa John’s employees, reported last week that Schnatter spied on workers and engaged in sexually inappropriate conduct resulting in at least two confidential settlements. A representative of Schnatter said the Forbes story contains “numerous inaccuracies and misrepresentations.” Papa John’s said an outside firm hired by the board’s special committee will determine the company’s path going forward.

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