The Board of Directors of Navient Corporation adopted a shareholder Rights Plan, commonly known as a poison pill, and declared a dividend distribution of one preferred share purchase right on each outstanding share of Navient common stock.
Wilmington-based Navient is a payment services company that recently shed its federal student loan servicing business.
The Rights Plan is designed to protect shareholder interests by reducing the likelihood that any person or group would gain control of Navient through the open-market accumulation of the company’s shares without compensating Navient’s shareholders for a takeover, a release stated.
The Rights Plan is triggered when an investor buys 20% of the company’s stock. At that point, current shareholders, other than 20% stakeholder, have the right to buy shares at a discount.
The board noted the recent stock buying activity and the accumulation of shares by entities associated with activist investor Sherborne Investors Management LP. Such investors buy into a company and demand board representation, management changes, etc. without an outright purchase of a majority of stock. Sherborne has a 16% stake in Navient.
Sherborne, whose principal Edward Bramson immigrated to the US from the UK, earlier ended a campaign to oust the CEO of British banker Barclays and shifted its attention to Navient. Bramson had demanded that the CEO of Barclays step down. He also demanded that Barclays sharpen its focus and shed units. His demands were rejected.
Sherborne reportedly struggled to earn a profit from its Barclays stake. With Navient, Sherborne is focusing on a much smaller target. The Barclays CEO did step down after Sherborne’s exit, amid an investigation over his ties to alleged sex offender Jeffrey Epstein.
Barclays has credit card operations near Navient’s Wimington headquarters.
The common strategy of activist investors is to increase the stock price and exit at a profit.
That strategy was successfully employed by activist investor Nelson Peltz, who lost a boardroom battle for DuPont seats but set into motion changes that included the ouster of the CEO and a merger spin-off with Dow. Peltz exited with a profit.
Navient’s stock market value has increased by less than 30% in the years since it was spun off from student lender Sallie Mae. By contrast, the Dow Jones index has risen by about 79%. Navient share price has increased by 128% in the past year.
“Navient is committed to engaging in constructive dialogue with all of our investors and we welcome their perspectives,” said Jack Remondi, CEO, Navient. “We also want to ensure investors are able to realize the full long-term value of their investment and receive fair and equal treatment, which is what the Rights Plan is designed to do.”
The Rights Plan is not intended to prevent or interfere with any action with respect to the company that the board determines to be in the best interests of stockholders. Instead, it will position the board to fulfill its fiduciary duties on behalf of all shareholders by ensuring that the board has sufficient time to make informed judgments about any attempts to control the company, the release stated.
The poison pill is an incentive for anyone seeking to gain a controlling interest in the company to negotiate directly with the board prior to attempting to control the company.
The Rights Plan treats all shareholders equally and includes a one-year term and an exception for fully financed, all-cash offers that are open for at least 60 business days. The Rights Plan has a 364-day term, expiring on December 19, 2022, though the board may consider whether to terminate the Rights Plan earlier if circumstances warrant, the release noted.
