Under activist threat, Navient adopts ‘poison pill’
WILMINGTON – Navient, the publicly traded education loan servicing giant, is once again in the crosshairs of an activist investor, forcing its board to adopt a so-called “poison pill” plan to protect itself from a hostile takeover.
Sherborne Investors Management LP, a New York-based turnaround hedge fund led by activist investor Edward Bramson, recently purchased a substantial stake in Navient, boosting its holdings to about 16% and making it the company’s largest shareholder, according to Reuters.
In reaction to Sherborne’s purchase, Navient’s board adopted Monday a shareholders rights plan, which is also known as a “poison pill” plan. It triggers if an investor acquires ownership of 20% or more of Navient common stock and allows other existing investors to purchase additional shares at a discount — therefore making further consolidation by the threatening firm more expensive.
“Navient is committed to engaging in constructive dialogue with all of our investors and we welcome their perspectives,” said Jack Remondi, president and CEO of Navient, in a statement announcing the defensive measure. “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 plan has a one-year term and encourages Sherborne to negotiate directly with Navient’s board prior to launching a proxy battle for control of the company.
Neither Sherborne nor Navient are strangers to such boardroom fights, with Bramson turning his sights to the Wilmington-based loan servicer after failing in his takeover bid for another company with a large Riverfront presence, Barclays.
Bramson had spent three years trying to overhaul the British bank, pressuring it to scale back its investment banking activities and remove CEO Jes Staley over his connections to the late disgraced financier and sex offender Jeffrey Epstein. He failed to find sway with investors, however, and sold his 6% Barclays stake in May. Staley would later resign from Barclays following an investigation into his truthfulness with British banking regulators.
In the months after ending his Barclays crusade, Bramson said that he had identified a new target investment, which is now publicly known as Navient. His Investors C fund has built up more than $100 million in new funds to back the bid.
Meanwhile, Navient is now facing its second hostile bid in two years, having bought back $300 million in stock from Los Angeles-based hedge fund Canyon Partners LLC in January 2020 to quell its campaign.
In 2018, Navient rejected discussions of a $3.2 billion bid led by Canyon to acquire the company and take it private, saying it undervalued the company. After that, Canyon built up a 10% stake in the company and launched a proxy war bid on Navient, seeking to install a new slate of directors by arguing that the company was acquiring costly operations that underperformed compared to its core student-loan business.
Canyon argued that funds used in operations to serve municipal tax collections, health care bills and other debts should have been used to buy back shares and boost valuation.
In May 2019, the company and investor reached a ceasefire, where two jointly picked directors, Marjorie Bowen and Larry Klane, were nominated to the company’s board.
Since then, Navient offloaded 6 million U.S. Department of Education loan accounts in October that it had been servicing for revenue, choosing to instead focus on non-governmental loan servicing and asset recovery.
Sheborne’s investment came just as Navient announced a new share buyback program worth up to $1 billion, which seeks to help the company recover from a sizable share price drop following that portfolio sale. Prior to that move in September, Navient’s stock was trading at all-time highs around $23 a share, having rebounded sharply from under $6 a share in the early days of the pandemic.
After the news of its “poison pill” plan was released Monday, Navient’s stock fell by 6%, from $21.30 to $20.01, in trading Monday. By nearly the close of market Tuesday, the stock had recovered to $21.12.
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