Carvana stock jumps after ‘poison pill’ adopted, exercisable if an investor acquires at least 4.9% stake

Shares of Carvana Co.
CVNA,
+5.48%
jumped 2.4% in premarket trading Tuesday, after the online used-car retailer said it adopted a shareholder rights plan, in an effort to block investors from buying up a stake while the stock price is depressed. The stock has tumbled 61.5% over the past three months through Friday, and plummeted 95.5% over the past 12 months, amid liquidity concerns due to falling used-car demand and and reports of continued layoffs. In comparison, the S&P 500
SPX,
+0.01%
has gained 8.7% the past three months. Carvana said Friday that the rights plan, also known on Wall Street as a “poison pill,” is designed to protect long-term shareholder value by preserving the availability of its “significant” net operating loss carryforwards (NOLs), which could be available to offset future taxable income. But the ability to use NOLs would be “substantially limited” if its 5%-shareholders increased their stake by more than 50 percentage points over a three-year period. So the rights plan, which the company referred to as a Tax Asset Preservation Plan, will become exercisable if an investor acquires 4.9% or more of Carvana’s outstanding common stock. Also under the plan, current shareholders that currently own at least a 4.9% stake may not buy more stock without triggering the plan. Carvana’s market capitalization as of Friday’s closing price was $1.33 billion.