Gapping down
In reaction to disappointing earnings/guidance:
- JOUT -0.5%
Select metals/mining stocks trading lower:
- AU -7.8%, HMY -4.4%, DRD -1.8%, VALE -1.4%, GOLD -1.4%, GDX -1.3%, SLV -1.3%, SBGL -1.1%, BBL -1.1%, RIO -0.5%
Other news:
- ALKS -4.8% (received a Complete Response Letter regarding its New Drug Application for ALKS 5461 for the adjunctive treatment of major depressive disorder)
- MNLO -4.3% (files for $150 mln mixed securities shelf offering)
- KNDI -2.2% (announces resignation of Mei Bing as CFO)
Analyst comments:
- MGNX -7.3% (downgraded to Sell from Neutral at Citigroup)
- MTCH -5.4% (initiated with a Sell at Goldman)
- TRTN -4% (downgraded to Underperform from Buy at BofA/Merrill)
- THO -1.9% (downgraded to Market Perform from Outperform at BMO Capital Markets)
- SFLY -1.9% (initiated with a Sell at Goldman)
- OKTA -1.8% (downgraded to Sector Weight from Overweight at KeyBanc Capital Mkts)
- KRG -1.7% (downgraded to Equal Weight from Overweight at Barclays)
- PEGI -1.6% (downgraded to Underperform from Neutral at Macquarie)
Gapping up
In reaction to strong earnings/guidance:
- CLX +5.4%, MUFG +5%, ON +4.6%, ALXN +3.7%, MTSC +0.6%
M&A news:
- ULTI +18.5% (to be acquired by an investor group led by Hellman & Friedman in an all-cash transaction for $331.50/share after which Ultimate Software will operate privately) .
Other news:
- EOLS +19.7% (confirms FDA approval for Jeuveau prabotulinumtoxinA-xvfs for injection)
- HALO +9.2% (Halozyme Therapeutics & argenx (ARGX) announce global collaboration and license agreement)
- SENS +5.4% (announces extension of its distribution agreement with Roche (RHHBY) Diabetes Care)
- PZZA +4.5% (confirms $200 mln strategic investment from Starboard and appointment of three new directors to Papa John's Board; offers prelim Q4 results & early 2019 results)
- BMY +2.9% (Starboard plans to take stake in Bristol-Myers)
- PCG +2.3% (receives court approval of 'first day' motions to support normal business ops; obtains interim approval to access up to $1.5 billion in DIP financing)
- WDC +1.3% (continued strength)
Analyst comments:
- COP +9.2% (upgraded to Buy from Neutral at Goldman)
- ICPT +2.9% (upgraded to Strong Buy from Outperform at Raymond James)
- SNDR +2.1% (upgraded to Buy from Underperform at BofA/Merrill)
- ANGI +0.5% (initiated with a Buy at Goldman)
Early premarket gappersGapping up:
- ULTI +17.7%, PZZA +6.9%, ALXN +5.3%, BMY +3%, ICPT +2.9%, NEPT +2.7%, LPG +2.4%, WDC +1.3%, VEEV +1.2%, COP +1.2%, ADM +1.2%, CRH +1.2%, FCX +0.8%, TS +0.8%, AZN +0.7%, GE +0.7%, NVDA +0.6%, RDS.A +0.5%, TWTR +0.5%
Gapping down:
- AU -7.4%, MTCH -6.3%, HMY -4.4%, CELG -2.4%, DRD -1.8%, DB -1.8%, SBGL -1.6%, GOLD -1.4%, GDX -1.2%, ING -1.2%, BBL -1.2%, VALE -1%, SLV -1%, RIO -0.6%, TEVA -0.6%, LRCX -0.5%
Starboard CEO Jeffrey Smith Becomes Chairman of Papa John’s
Firm makes $200 million investment in the troubled pizza chain
Investment firm Starboard Value LP is making a $200 million investment in Papa John’s International Inc., PZZA -8.94% and its CEO is becoming chairman of the troubled pizza chain, according to people familiar with the matter.
The deal, expected to be announced as early as Monday morning, caps more than a year of tumult at the struggling pizza company.
Starboard, well known in the restaurant industry for its 2014 board coup at Olive Garden parent company Darden Restaurants Inc., has secured the board chairmanship for its chief executive, Jeffrey Smith, who founded the firm in 2002. It also obtained a board seat for Anthony Sanfilippo, former chairman and chief executive of casino operator Pinnacle Entertainment Inc., now owned by Penn National Gaming Inc. Papa John’s Chief Executive Steve Ritchie will also join the board and remain Papa John’s CEO.
Starboard has also taken activist roles in such companies as Yahoo Inc. and cybersecurity firm Symantec Corp. Last month it disclosed a 1.7% stake in Dollar Tree Inc., where it is seeking control of the company’s entire 12-member board.
The Darden takeover nearly five years ago was a major activist victory, according to bankers and corporate-governance experts. Starboard at one point had an approximately 9% stake in Darden and waged a proxy fight that ended with it replacing Darden’s 12-member board with its own picks, including Mr. Smith, who remained chairman of Darden’s board until April 2016. The new board pushed Olive Garden to cut costs, introduce tabletop ordering and payment tablets and serve fresher breadsticks, which led to a rapid turnaround of the chain.
Olive Garden went from posting negative same-store sales to posting positive same-store sales growth every quarter after Mr. Smith joined the Darden board. The company’s share price also soared following Mr. Smith’s involvement, far outpacing the gains of the S&P 500.
Olive Garden continues to be one of the best performing chains in the restaurant industry.
In the case of Papa John’s, Starboard sees more opportunities to invest in the brand than to cut costs, according to the people familiar with the matter
The pizza chain for more than a year has suffered from declining same-store sales, which the company has attributed, in part, to controversies involving its founder and largest shareholder, John Schnatter.
The Papa John’s board Sunday night approved the Starboard deal. Mr. Schnatter voted against it.
Starboard’s move comes at a time when the company has been losing market share to rival pizza makers with larger advertising budgets. Papa John’s, the world’s third-largest pizza delivery chain by sales, has also gained a reputation for being too expensive and has lagged behind rivals Domino’s Pizza Inc. and Yum Brands Inc.’s Pizza Hut when it comes to technology.
Papa John’s plans to use approximately half of the investment proceeds from Starboard to repay debt and the other half to invest in the business, including to remind consumers that its pizza is made with fresh dough and ingredients that are free of preservatives and artificial flavors, according to the people familiar with the matter.
Starboard is making its investment through the purchase of new convertible preferred stock, which equates to a stake of approximately 11% to 15% of Papa John’s outstanding common stock on an as-converted basis, according to the people.
The company is giving qualifying franchisees the ability to purchase $10 million of the stock under the same terms as Starboard. Starboard has the option to make an additional $50 million investment through March 29.
The deal marks the end of a five-month strategic review that Papa John’s conducted for its business and could result in a detente with Mr. Schnatter, who remains on the board and still owns nearly 31% of the stock. Mr. Smith hadn’t spoken to Mr. Schnatter before the board meeting but hopes to work with him, according to the people familiar with the matter.
The company didn’t receive serious interest from any parties wishing to buy the whole company, according to other people familiar with the matter.
Mr. Schnatter had for many months been at odds with Mr. Ritchie, the chain’s operating chief whom he had been grooming to succeed him as CEO since mid-2016. But the public troubles began in November 2017 when Mr. Schnatter ignored the advice of his board and, during a quarterly earnings call, blamed the chain’s slowing sales growth on the National Football League’s handling of its players’ national anthem protests.
Many people took Mr. Schnatter’s criticism of the NFL, which Papa John’s used to sponsor, to mean that he disapproved of the protests, which were intended to call attention to police brutality in African-American communities. Mr. Schnatter agreed in December 2017 to step down as CEO because of the backlash.
More trouble came in July of 2018 when news leaked that he had said the “N” word during a marketing call that was intended to prepare him to make public appearances again on behalf of the brand.
That resulted in another wave of criticism from people on social media. Many customers deleted the Papa John’s app from their mobile devices in protest. Mr. Schnatter apologized for his use of the racial slur, saying he didn’t mean it as an epithet, and agreed to step down as chairman. The company then removed Mr. Schnatter’s name and face from the pizza boxes and all advertising and adopted a poison pill to prevent him from gaining control of the company.
Mr. Schnatter said he had come to regret his decision to step down as chairman and began publicly blaming the company’s poor performance on Mr. Ritchie. He created a website, savepapajohns.com, to communicate his frustrations with the management of the company he created in 1984.