- Carvana Co CVNA adopted a shareholder rights plan to protect long-term shareholder value by preserving the availability of net operating loss carryforwards (NOLs) and other tax attributes under the Internal Revenue Code.
- Carvana has significant U.S. federal NOLs that could help offset its future federal taxable income.
- Carvana's ability to use these NOLs would be substantially limited if its "5-percent shareholders" increased their ownership of the value of such company's stock by more than 50 percentage points over a rolling three-year period.
- The rights plan, also known as the poison pill, will deter a takeover of 4.9% or more of Carvana's outstanding common stock.
- Carvana also disclosed a dividend distribution of one right for each outstanding share.
- Separately, Cavana agreed to sell up to $4 billion of auto loans to Ally Bank and Ally Financial Inc. ALLY.
- Companies with large NOLs often adopt poison pills to enable them to cut their tax bill. Poison pills also help to ward off hostile takeovers, Reuters reports.
- "This type of move does suggest a more defensive stance by CVNA's board of directors and likely eliminates any potential future institutions from gaining ownership control," Raymond James analysts said.
- Carvana, as per some analysts, is in financial trouble following a rapid expansion during the pandemic, set a trigger of 4.9% for the shareholder rights plan.
- The rights plan took effect on Monday and will likely be in place until January 15, 2026.
- Carvana held $477 million in cash and equivalents as of September 30. Carvana held $6.6 billion in long-term debt.
- Also Read: National Instruments Seeks Strategic Options; Adopts 'Poison Pill' To Avoid Hostile Takeover
- Price Action: CVNA shares traded higher by 2.46% at $7.49 in the premarket on the last check Wednesday.
- Photo Via Wikimedia Commons
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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