(Reuters) – Carvana Co said it has adopted a “poison pill” to limit shareholders from increasing stake, which would make it difficult for the used car retailer to use its net operating loss (NOL) carryforwards to reduce tax.
The company’s shares were up 11% at $7.70 on Tuesday as Ally Bank and Carvana unit Ally Financial agreed to buy up to $4 billion of auto loans from the car retailer, giving Carvana a fresh source of funding as it tries to restructure its operations.
Carvana said it has “significant” U.S. federal NOLs that could be available to offset its future taxable income.
Companies with large NOLs often adopt poison pills to enable them to cut their tax bill. Poison pills are also adopted to ward off hostile takeovers.
The company’s ability to use the NOLs would be substantially limited if its 5%-shareholders increased their ownership, Carvana said.
Carvana, which analysts say is in financial trouble following a rapid expansion during the pandemic, set a trigger of 4.9% for the shareholder rights plan to take effect.
The rights plan took effect on Monday and is scheduled to be in effect until Jan. 15, 2026.
(Reporting by Kannaki Deka in Bengaluru)
