Wendy’s had preliminary deal talks with Papa John’s before founder’s scandal erupted

Wendy’s had preliminary merger talks with Papa John’s before the company’s founder, John Schnatter, stepped down as chairman last week, a source familiar with the situation told CNBC.

The talks cooled after Schnatter’s use of a racially charged slur led to his resignation. Schnatter still sits on Papa John’s board and has a nearly 30 percent stake in the company.

Shares of the pizza company jumped after the Wall Street Journal first reported news of the talks, and ended the day up 4 percent at $53.60.