September 25, 2022

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Navient quells activist threat with board seat

The student loan servicer Navient fended off a hostile activist investor by agreeing to nominate one of its partners to the company’s board. | DBT PHOTO BY JACOB OWENS

WILMINGTON – Navient, the publicly traded education loan servicing giant, has once again assuaged an activist investor, this time agreeing to nominate the chief of the hostile firm to its board.

Just a few months after adopting a so-called “poison pill” plan to protect itself from a hostile takeover, Navient has agreed to nominate Edward Bramson, a partner and founder of Sherborne Investors Management LP, a New York-based investment advisory firm, for election to Navient’s board of directors at its June 2 annual meeting.

Sherborne 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 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.

According to Securities & Exchange Commission filings, Sherborne has since increased its position to 19.7% of the company.

“We are pleased to welcome Ed as a nominee for the board and are confident his leadership skills, financial and capital markets knowledge and track record of enhancing shareholder value will be extremely beneficial,” said Linda Mills, chair of Navient’s board of directors, in a statement announcing the agreement Monday. “We believe this agreement with Sherborne Investors, our largest shareholder, is in the best interests of all Navient shareholders.”

Under the terms of the agreement, Bramson would be required to resign from the board if Sherborne’s position dropped below 10% of the company and it would prevent it from acquiring more than 20%. The agreement is good for a year, ending at Navient’s 2023 annual meeting, and it contains non-disparagement clauses for both parties.

“I am delighted to be nominated to join the board of Navient and, if elected, look forward to working with my fellow directors and Navient management to advance the interests of Navient’s shareholders and all of its stakeholders,” Bramson said in a statement Monday.

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 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 over 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 2022 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 be 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 sought 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 the agreement was released Monday, Navient’s stock rose by 3.5%, from $16.44 to $17.02, in trading by midday Monday.