Hedge Fund Backed by California Teachers Makes Bet on Papa John's

(Bloomberg) -- Legion Partners, a hedge fund that was seeded by the California State Teachers’ Retirement System, now controls more than 5 percent of the struggling pizza chain Papa John’s, according to a filing on Monday.

Key Insights

  • The hedge fund says that Papa John’s stock price does not reflect its “intrinsic” value -- a suggestion that investors see potential in the company despite being weighed down by controversy. The holding makes Legion one of the largest shareholders in Papa John’s.
  • Papa John’s has been the subject of acquisition speculation, with Reuters reporting last week that the company has contacted potential acquirers. Founder John Schnatter, meanwhile, denied a CNBC report that he had reached out to private-equity companies for backing in taking the company private. Schnatter owns about 30 percent of Papa John’s.
  • Legion says it is “encouraged” by the company’s push to move beyond the recent controversies and that “multiple potential paths to a significantly high valuations exist.”
  • Legion says in the filing that Papa John’s could boost earnings by cutting costs and refranchising restaurants owned by the company. The hedge fund added it may hold talks with management or other shareholders. 
  • In a statement, Papa John’s said its board and management have been speaking to investors about its next moves. “We appreciate the support and feedback we have received and are committed to taking all appropriate steps to serve the best interests of all Papa John’s shareholders,” the company said.

Market Reaction

  • Shares rose 2.2 percent to $50.34 in late trading on Monday. The stock has fallen 12 percent this year. 

©2018 Bloomberg L.P.