Hedge Fund Starboard Value Gets Papa John’s a New CEO

August 27, 2019 | Hedge Funds, News
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Rob Lynch, the Arby’s executive behind the “We have the meats” campaign is the new CEO of Papa John’s International.

Hedge fund Starboard Value invested $250 million earlier this year into Papa John’s International. As the stock slumped thanks to weak same-store sales and PR damage from its founder, Starboard pressed a turnaround plan. Today, Jeff Smith – the head of Starboard and chairman of Papa John’s – poached a big name to lead the firm’s revival.

The company has named Rob Lynch, a standout executive at Arby’s, as the new CEO.

New CEO brings instant credibility

Rob Lynch served as president of Arby’s since 2017. During his tenure, he earned credit for bringing “record sales” to the firm, according to a company statement. He was the creator of Arby’s successful “We have the meats” marketing campaign that helped spur growth for the brand.

Prior to his tenure at Arby’s, he worked for Taco Bell and Yum! Brands.

In the press release, Lynch predicted that Papa John’s best days are ahead of it.

Hedge fund Starboard Value praises Lynch

Jeff Smith hyped Lynch’s track record at Arby’s and Taco Bell during the announcement.

“His proven record transforming organizations and realizing the growth potential of differentiated brands is ideally suited for Papa John’s as the company sets forth on its next chapter,” said Smith.

In addition, investment bank Stifel, which had doubted Papa John’s turnaround, praised the hiring in a research note published on Tuesday.

“We believe Mr. Lynch’s efforts at Arby’s started by hiring a team excited about creating a culture that allowed risk-taking to reach customers,” Stifel analyst Chris O’Cull wrote. “Arby’s needed to take calculated risks to change consumers’ perception of the brand and to break through the clutter of (fast food) advertising, given it spent a fraction of the marketing dollars as its competitors. We envision Mr. Lynch will take [a] similar approach with Papa John’s.”

Schnatter defends his legacy

Lynch replaces Papa John’s veteran Steve Ritchie, a protege of founder and previous CEO John Schnatter.

Schnatter departed the company after admitting to the use of racial language at a time that company sales worsened. In Q3 2018, Papa John’s same-store sales sunk by 9.8%. In Q2 2019, same-store sales fell 5.7%.

Schnatter departed in July 2018. He has blamed the company’s poor performance on his replacement.

“Under Steve Ritchie’s leadership these past two years, the company was run very poorly,” Schnatter said. “While I still have many reservations about the actions of the board of directors and their ability to fix this business, the decision to terminate Steve Ritchie is a step in the right direction.”

Schnatter is still the company’s largest shareholder with 17% of the stock.

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