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Navient (NAVI) Down on Efforts to Ward Off Takeover Attempts

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Navient Corporation’s (NAVI - Free Report) board of directors has adopted what’s known as a poison pill plan to shield against any hostile takeover attempts. The move came shortly after the news surfaced of “the recent stock activity and the accumulation of a substantial economic position in the Company by entities associated with Sherborne Investors Management LP.”, Navient said.

Following this news, Navient’s shares tumbled 6% in yesterday’s trading hours, reflecting investors' worry over these recent developments.

Specifically, Sherborne Investors, headed by activist investor Edward Bramson, announced that one of its funds has garnered around 16% stake in Navient. With this, Sherborne Investors surpassed a mutual fund manager Vanguard Group — holding a 10.66% stake in NAVI —  to become Navient’s biggest stakeholder.

In response to this news, Navient has put into motion a defensive strategy, namely shareholder rights plan, and declared dividend distribution of purchase right for a preferred share on every outstanding share of Navient’s common stock. 

This right will be triggered only if a person or group assembles a beneficial stake of 20% or more of the company’s common stock, including specific derivative positions but subject to certain other exceptions.

If triggered, each right holder will be entitled to buy for $100, Navient common shares with a market value that is twice of such a price. Also, Navient’s board of directors might have the option to exchange a share of the company’s common stock for each outstanding right.

These measures will enable investors to purchase additional shares at a discount, making stock accumulation of more than 20% expensive for the likes of Sherborne Investors.

The rights plan has a term of 364 days and will expire on Dec 19, 2022. It can also be terminated earlier at the board’s discretion. The dividend distribution will be made on Dec 30, 2021, and will be paid to shareholders of record on the same date.

Navient noted that the plan is designed to safeguard shareholder interests by reducing the probability of an investor gaining significant control of Navient if the investor attains a notable position in the company’s shares without aptly compensating other shareholders for control.

The move buys the board ample time to make informed decisions about any attempts to control the company and will propel direct negotiation with the board in case of any person seeking a controlling position in Navient.

Last week, the company announced that its board of directors consented to a new share buyback program of up to $1 billion.This new share repurchase authorization comes with no expiration date. Moreover, it is in addition to the $150-million unused buyback authorization (as of Sep 30, 2021) under the $1-billion program approved in October 2019. Navient anticipates completing the remainder of the 2019 authorization by 2021 end and expects to utilize $400 million of the new program in 2022.

Navient’s shares have jumped 103.7% so far this year, outperforming 34.8% growth of the industry.

Zacks Investment ResearchImage Source: Zacks Investment Research

Currently, Navient carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the space include Regional Management (RM - Free Report) , sporting a Zacks Rank of 1 (Strong Buy), and World Acceptance (WRLD - Free Report) and Mr. Cooper Group (COOP - Free Report) , carrying a Zacks Rank of 2 (Buy), presently. You can see the complete list of today's Zacks #1 Rank stocks here.

In the year-to-date period, shares of World Acceptance have jumped 145% whereas Regional Management and Mr. Cooper gained 79% and 26.1%, respectively.

Over the past 30 days, the Zacks Consensus Estimate for World Acceptance’s current-year earnings has been unchanged. The same for Regional Management has moved 2.8% north.

Current-year earnings estimates for Mr. Cooper have moved marginally up over the past month.