Carvana CoCVNA 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.
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