what happened
shares of Calvana (CVNA 6.62%) Shares were rising today after the company adopted a “poison pill” strategy to discourage investors from taking more than a 4.9% stake in the company.
As of 1:13 pm ET on Tuesday, the stock was up 5.4% after gaining as much as 17% earlier in the session.
So what
In a news release this morning, Carvana said it has adopted a shareholder rights plan designed to protect long-term shareholder value by preserving net operating loss (NOL) carryforwards and other tax assets. .
Ironically, this online used car dealer’s business has taken a turn for the worse and now considers its history of operating losses to be one of its greatest assets. A company can use his NOL to offset future tax payments. That means acquisition companies can now target his $1.3 billion market cap Carvana.
At the end of 2021, net operating losses were $193 million, but that number is likely to increase significantly in 2022, with total deferred tax assets of $1.64 billion in 2021. It is expected to profit from those assets.
According to the Rights Plan, existing Carvana shareholders will purchase shares at a 50% discount or Carvana will exchange each right for an additional share of Class A common stock, diluting investors looking to accumulate shares. can.
So
Poison pills are not usually a bullish sign for stocks. In Carvana’s case, it seems to reflect the company’s weakness, especially as it lists a net operating loss. With widening losses and $7 billion in debt on its balance sheet, Carvana could head for bankruptcy.
It’s unclear whether the company’s rights plan was written in response to a specific threat, but investors would be better off focusing on potential threats to their business than on tactics to prevent activist takeovers.
If used-car prices continue to fall, Carvana will likely be in trouble.
