Papa John's gets a $200 million investment and new chairman

New York (CNN Business) Papa John's has a plan to turn itself around with new board members and a big check.

The company announced on Monday that the hedge fund Starboard Value is investing $200 million into the struggling pizza company. Starboard could add another $50 million by March 29. Papa John's will name Starboard Value CEO Jeffrey Smith as its new chairman, and it will add Anthony Sanfilippo, former CEO of the gaming company Pinnacle Entertainment, to the board.

The change could help lift the pizza company out of a year-long slump. Last year, founder John Schnatter resigned as chairman of the board after news broke that the had used a racial slur during a conference call.

The company has distanced itself from its disgraced founder with an advertising campaign and an internal audit on diversity and inclusion practices. Schnatter fought back with fierce attacks. He called current CEO Steve Ritchie the wrong man for the job and said that he helped create a toxic culture rife with harassment and intimidation.

Sales have fallen as the company scrambles to clean up the public relations mess. In the three months ending in September, comparable sales fell by 9.8%. Revenue at North American stores open at least a year fell 8.1% last quarter, and 10.5% in January, according to preliminary results reported by the company on Monday.

"These results are disappointing to all of us," Ritchie said in a statement. But we "are confident in the great growth potential for the brand, particularly with the support of our new partners," he added, saying that the financial resources and expertise brought by the activist hedge fund, as well as new menu items and creative advertising, will help the company succeed. Ritchie also joined the board as part of the shakeup.

A special committee has been looking for ways to boost sales since September. Rumors swirled that the company might be putting itself up for sale. The company said on Monday that the deal with Starboard "was in the best interest of shareholders."

Schnatter submitted his own proposal to the board over the weekend. The former founder said he was willing to invest up to $250 million in the company, but he withdrew the proposal in light of the Starboard deal.

Smith, an activist investor, said he sees "tremendous potential" for Papa John's. Starboard has worked with more than 50 companies to help spark growth, and Smith was previously chairman of the board of Darden Restaurants (DRI).

At Darden, Smith was able to boost sales at Olive Garden after sharply criticizing the quality of the Italian chain restaurant's food. More recently, Smith suggested that Dollar Tree start raising prices.

Shares of Papa John's (PZZA) jumped about 5%.