Papa John’s Int’l, Inc. ($PZZA) Rallies on Wendy’s Co ($WEN) Merger

Papa John’s Int’l, Inc. (NASDAQ: PZZA) got some reprieve in the market after coming under pressure, following the resignation of controversial founder, John Schnatter. Shares of the company rallied on Wednesday by more than 5% after it was reported by Wall Street Journal that the former executive had held discussions with Wendy’s Co (NASDAQ: WEN) as he pushed for a merger deal.

Papa John – Wendy’s Co Merger Talk

While the talks were preliminary, they appear to have strengthened Papa John’s sentiments in the market after they took a hit on the executive coming under criticism for using a racial slur in a meeting with a PR agency. Investors pushed the stock up the charts on optimism that the company could still push forth with a deal, even on the exit of the executive.

A merger with Wendy’s Co could help Papa John’s diversify its offerings. However, such a deal would come as a surprise given that Wendy’s has in the recent past shrunken its operation and is now entirely focused on the Burger business. By merging, the combined company could wield the desired amount of power to compete against smaller companies that continue to pose significant competitive pressure in the industry.

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Papa John’s Struggles

Papa John’s has been under pressure for the better part of the year, ever since it peaked to highs of $68 a share at the start of the year. The stock is down by more than 20% from this year’s highs and continues to trade in a downtrend. The fact the company is in dire need of new catalysts to bottom out, explains why it bounced back after it emerged it might be considering a merger with Wendy’s Co.

The world’s third largest pizza company has struggled in the recent past amidst declining sales that have significantly hurt its sentiments among investors. Same-store sales have been dropping in recent quarters in what the former Chief Executive Officer attributed to declining viewership of NFL games. In contrast, Domino’s Pizza has continued to report impressive numbers at the back of an aggressive marketing campaign that has seen it take orders via Twitter.

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Author does not have investment in stock discussed in this article.

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Ruchi Gupta, Contributing Editor

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