Papa John's reportedly in merger talks with Wendy's prior to founder's scandal

Papa John's and Wendy's had preliminary merger talks before the pizza maker's founder John H. Schnatter resigned as chairman July 11, sources familiar with the matter told CNBC.

Mr. Schnatter resigned as chairman of the board after he apologized for using a racial epithet earlier this year, the company said in a July 11 statement. The resignation came hours after Mr. Schnatter apologized for using the racial slur in a comment about black people during a May conference call, according to The New York Times.

Possible merger talks between Papa John's and Wendy's cooled after Mr. Schnatter's resignation, the sources, who requested anonymity because the information is confidential, told CNBC. Papa John's and Wendy's said they do not comment on rumors or speculation. Papa John's stocks rose 4 percent when news of the preliminary talks surfaced.

Mr. Schnatter still has a roughly 30 percent stake in Papa John's and sits on the company's board. The company is in the process of removing Mr. Schnatter from its marketing and packaging.

In a separate report July 19, CNBC said the family of KFC's Colonel Harland Sanders defended him after Mr. Schnatter claimed Mr. Sanders used racial slurs but did not get criticized for it.

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