What does a struggling pizza chain have to do with a handful of casino companies under siege by activist investors?
Hedge fund Starboard Value this week invested $200 million into embattled pizza chain Papa John’s, naming the New York-based company’s CEO, Jeffrey Smith, as chairman. Starboard might add another $50 million into Papa John’s by the end of March.
Starboard is familiar to gaming insiders. It is one of several hedge funds that acquired sizeable positions in MGM Resorts International, hoping to swing a change of direction in the casino giant. The New York Post reported in September that Starboard’s stake was valued at $500 million.
Anthony Sanfilippo
Last month, MGM Resorts put Corvex Management Chief Investment Officer Keith Meister on the company’s board after the activist hedge fund acquired a 3 percent stake in MGM.
What’s also interesting about the Starboard-Papa John’s deal is who Smith brought along – former Pinnacle Entertainment Chairman and CEO Anthony Sanfilippo was added to the pizza company’s board.
Last year, Sanfilippo engineered Pinnacle’s $2.8 billion buyout by Penn National Gaming. More recently, however, Sanfilippo’s name emerged as a possible successor to current Caesars Entertainment CEO Mark Frissora.
In November, Frissora told investors he planned to leave Caesars this month, after his contract expired. In December – as a national search for a new CEO seemed to have stalled – Frissora agreed to remain in place until the end of April.
Wall Street is hopeful Caesars will address the CEO situation during its quarterly earnings conference call later this month. An executive search firm, Heidrick & Struggles, is managing the process, interviewing candidates from both within the gaming industry and C-Level executives from consumer brand companies outside of gaming.
“At present, we believe the process has focused on current public company CEOs, or those with CEO experience,” Deutsche Bank gaming analyst Carlo Santarelli said in research report on Monday. “The process could extend well into 2019, (and) it’s unlikely for there to be an interim CEO appointed at any point.”
Insiders seemed to expect Sanfilippo would have been named Caesars CEO as soon as the ink dried on the Pinnacle sale.
Prior to joining Pinnacle, Sanfilippo held numerous executive roles with Caesars predecessor Harrah’s Entertainment, including spending 10 years as president of the company’s central and western divisions. While in the role, Sanfilippo oversaw the operations of more than two dozen casinos and gaming resorts.
He was also president of Harrah’s New Orleans and directed the company’s Indian casinos in Arizona, California and Kansas.
What changed could be corporate raider Carl Icahn’s move on Caesars. Last month, CNBC said Icahn was building a stake in undervalued Caesars stock.
Icahn’s intentions, however, are unknown.
Activist investors have been at war with Caesars since the company exited a 30-month bankruptcy reorganization in October 2017. The company’s stock price took a huge hit in the summer and fall, dropping below $6 a share. Caesars has been trading above $9 a share in recent weeks.
Frissora, during August’s quarterly conference call, acknowledge his disappointment with what he termed “people in the stock that aren’t in it for the long haul.”
Starboard has not surfaced in the Caesars discussions.
Papa John’s has been in a mess for more than a year, after founder John Schnatter resigned as chairman following a report that he used a racial slur during a conference call. Starboard CEO Smith said he sees “tremendous potential” in the pizza chain.
Starboard has worked with more than 50 companies to help spark growth, and Smith was previously chairman of Olive Garden parent Darden Restaurants. Starboard has also taken activist roles in businesses such as Yahoo! and the cybersecurity company Symantec Corp.
Sanfilippo hasn’t been involved in restaurants, other than negotiating deals with restaurant companies for locations inside the casino-resorts he oversaw. In between Harrah’s and Pinnacle, he was CEO of slot machine developer Multimedia Games.
While his name was first on many lists, it’s unclear if Sanfilippo actually wants to be CEO of Caesars.
The company operates nearly 40 casinos and resorts in 13 states under the Caesars, Harrah’s, Horseshoe and Bally’s brands, as well as the Rio in Las Vegas. Caesars also owns the World Series of Poker. The 2017 reorganization shed more than $12 billion of debt from the company’s books and created the real estate investment trust VICI Properties, which took legal ownership of 20 Caesars properties. The casinos were then leased back to Caesars.
I’ve interviewed Sanfilippo many times, going back to his Harrah’s days, and he has a definite passion for the casino industry.
For now, however, his passion might be pepperoni.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
