Embattled pizza chain Papa Johnâs International Inc. will probably be bought out in the next year, forecasts Kalinowski Equity Research President Mark Kalinowski.
The Wall Street Journal reported Monday that Trian Fund Management LP is assessing a possible takeover bid, sending shares surging in after-hours trading. Shares closed Tuesday up nearly 9%.
Last week, activist investor Legion Partners and the California State Teachersâ Retirement System built up a stake in Papa Johnâs.
In August there were reports that the company had hired advisers to evaluate the options, but there was no discussion at the time about strategic alternatives or a sale.
âOdds favor that the company is sold in the next 12 months or so,â Kalinowski told MarketWatch. âThereâs a lot of incentive to make this happen.â
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Â is the third-largest pizza delivery chain in the world after Dominoâs Pizza Inc.
Â and Pizza Hut, which is a Yum Brands Inc.
âThe pizza business is a global business,â said Kalinowski. âItâs bread, cheese, and whatever you want to put on the bread and cheese. Itâs something that works for every culture on the globe. Itâs not often that these sorts of opportunities come up. Opportunities come about because companies stumble badly. This is exactly what happened with Papa Johnâs.â
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Papa Johnâs is currently embroiled in an ongoing battle with the companyâs founder, John Schnatter, who was ousted from the chief executive position following a series of controversies. Schnatter blamed NFL players for a drop in the companyâs sales. (He later apologized.)
Schnatter resigned as CEO after reports that he used a racial slur on a conference call. (He later regretted the move.)
In late September, there were reports that Schnatter was seeking a private-equity partner to buy the company back.
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After reports of the racial slur incident, The Wall Street Journal said that merger talks with Wendyâs Co.
Â ceased. Trian owns a 13% stake in Wendyâs.
Schnatter owns nearly 30% of Papa Johnâs shares.
âIs Papa Johnâs so big that it canât be acquired?â Kalinowski asks. âNo. Is it salvageable? Yes. Does it offer things that could work for the right buyer? Yes.â
Kalinowski rates Papa Johnâs shares buy with a $68 price target.
Papa Johnâs shares are down 21% for the past year while the S&P 500 index
Â has rallied 13.2% for the period.