Carvana Adopts 'Poison Pill' To Avoid Hostile Takeover, Reduce Tax Bill; To Sell Up To $4B Auto Loans

  • 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 ReadNational 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
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