Starboard Value LP will make a $200 million investment in the troubled pizza chain and the investment firm's CEO will become chairman, the companies confirmed early on Monday.
The deal was first reported by The Wall Street Journal, though rumors of a potential deal with a private equity firm had been circulating since last week.
Papa John's shares jumped 9% to close at $41.97 in Monday's trading.
Starboard, known in the restaurant industry for its 2014 board coup at Olive Garden parent company Darden Restaurants Inc., secured the board chairmanship for its chief executive, Jeffrey Smith, who founded the firm in 2002, Papa John's said in a statement.
It also obtained a board seat for Anthony Sanfilippo, former chairman and CEO of casino operator Pinnacle Entertainment Inc., now owned by Penn National Gaming Inc. (PENN - Get Report) Papa John's CEO Steve Ritchie will also join the board and remain Papa John's CEO, the company said.
The pizza chain has suffered from dwindling same-store sales, which the company has attributed, in part, to controversies involving its founder and largest shareholder, John Schnatter, who has generated controversy over racially charged actions.
Papa John's plans to use approximately half of the investment proceeds to repay debt and the other half to invest in the business. Starboard is purchasing new convertible preferred stock, which equates to a stake of about 11% to 15% of Papa John's outstanding common shares.
Papa John's board approved the deal Sunday night, according to the Journal, with Schnatter voting against it.