Navient Files Definitive Proxy and Sends Letter to Shareholders
- Board Recommends that Navient Shareholders Support the Company’s Strategy and Board, Which Has Delivered Strong Returns
- Recommends Shareholders Vote “FOR” All of Navient’s Highly Qualified Directors on the WHITE Proxy Card
- Canyon is Attempting to Gain Effective Control Over the Board of Directors with Hand-picked Nominees Without Paying Shareholders Premium
- If Successful, Canyon Would Be Positioned to Continue Pursuing Inadequate Acquisition Attempt or
- Navient Has Significant Business Momentum as Current Board is Overseeing Successful Execution of the Right Strategy to Create Long-Term, Sustainable Shareholder Value
In connection with the upcoming Annual Meeting of Shareholders,
Capital Advisors LLC to nominate a slate of underqualified director candidates.
The full text of the letter is below:
VOTE THE WHITE PROXY CARD TODAY TO SUPPORT THE NAVIENT BOARD’S RECOMMENDATIONS
Dear Fellow Navient Shareholder,
We are writing to let you know that you have a critical decision to make concerning the future of
Canyon owns approximately 10.5% of the Company’s stock, yet it has nominated a slate of four directors for election to the Navient Board. If their slate is elected – when combined with the addition last August of Canyon-recommended director candidate
We therefore strongly urge you to support Navient’s slate of director nominees. Simply stated, our nominees are better qualified to oversee the execution of the Company’s strategy and are far better placed to represent the best interest of every
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE
RE-ELECTION OF THE CURRENT BOARD
We believe voting for the current
attempt, or to push
We strongly urge you to vote to re-elect Navient’s entire slate of 10 highly qualified and experienced nominees for the following reasons:
- If Canyon’s nominees are elected, Canyon would be able to reintroduce their inadequate proposal to acquire the Company to a Board that would be 50% comprised of Canyon’s hand-picked directors
- If Canyon can’t acquire
Navientat the inadequate price they proposed, they may force the Company to pursue a risky strategy that destroys value
- Canyon’s hand-picked nominees are underqualified
Navienthas significant business momentum and the right strategy to create long-term, sustainable shareholder value – that is delivering strong results
- Your Board engaged with Canyon in good faith regarding their attempt to acquire
Navientand acted in the best interests of ALL shareholders
- Navient’s highly-qualified, independent and refreshed Board is committed and best qualified to execute the strategy to drive value creation for all
IF CANYON’S NOMINEES ARE ELECTED, CANYON WOULD BE ABLE TO REINTRODUCE THEIR INADEQUATE PROPOSAL TO ACQUIRE THE COMPANY TO A BOARD THAT WOULD BE 50% COMPRISED OF CANYON’S HAND-PICKED DIRECTORS
Canyon announced their intent to nominate a slate of directors merely two days after the Navient Board’s unanimous rejection, on
address key financing, litigation and regulatory issues continuously raised by the Board.
It is clear that Canyon is looking to exert a grossly outsized influence on your Board relative to their 10.5% ownership position. Your Board believes that Canyon’s subsequent nomination of four directors, along with their misleading and inaccurate comments about
We believe that one of Canyon’s motives is to stack the Board with their hand-picked candidates to enable Canyon to pursue their inadequate proposal at some point in the future. Canyon’s self-interests are further evidenced by Canyon’s demand during the settlement discussions that we reimburse them for their fees and expenses related to
both this proxy contest and their failed acquisition attempt, including reimbursement of all expenses related to Canyon’s extensive four-month due diligence review, up to a
IF CANYON CAN’T ACQUIRE NAVIENT AT THE INADEQUATE PRICE THEY PROPOSED, THEY MAY FORCE THE COMPANY TO PURSUE A RISKY STRATEGY THAT DESTROYS VALUE
In the event that Canyon is unable to force through their inadequate acquisition attempt, we believe they intend to propose that
and has done so successfully, but Canyon is proposing slashing costs in a way that we believe would undermine our successful strategy of maximizing cash flow and returning significant capital to shareholders.
In its report on
In our view, there is a significant difference between running a highly regulated, customer-focused service business and Canyon’s strategy of managing the student loan portfolio strictly as a runoff portfolio. We believe Canyon’s approach is likely to lead to reduced servicing quality, higher delinquencies and defaults, lower cash flow, and more intense regulatory scrutiny on the Company.
CANYON’S HAND-PICKED NOMINEES ARE UNDERQUALIFIED
Promptly following Canyon’s director nomination notice, the Nominations and Governance Committee of the Board and certain other Board members interviewed Canyon’s nominees. After careful consideration, the Committee unanimously concluded that all of Canyon’s nominees lacked the requisite experience or qualifications to contribute positively to the Board given their limited experience, if any, in public company governance, financial services, operations, structured finance and in many other relevant areas of expertise necessary to effectively serve Navient’s shareholders. The Company had previously provided Canyon with a list of experience and qualifications desired for director nominees.
Your Board also believes that Canyon’s hand-picked nominees are being put forward in a self-interested attempt to advance Canyon’s goal to enrich themselves at the expense of you and our other shareholders. Accordingly, the Board determined to recommend against voting for any of Canyon’s nominees.
In an effort to avoid the costs of running an expensive proxy contest and instead reach an amicable resolution, members of the Company’s Board and management engaged in multiple in-person and telephonic conversations with representatives of Canyon and offered to enter into an appropriate standstill and add one of Canyon’s candidates to
the Board and to work with Canyon to identify and appoint an additional, mutually agreed-upon candidate, which would have given Canyon input in selecting 3 of our 10 directors, including Mr. Arnold. However, Canyon rejected this highly reasonable offer.
At all times, your Board has acted in the best interest of ALL
NAVIENT HAS SIGNIFICANT BUSINESS MOMENTUM AND THE RIGHT STRATEGY TO CREATE LONG-TERM, SUSTAINABLE SHAREHOLDER VALUE—THAT IS DELIVERING STRONG RESULTS
While your Board understands that it needs to continue to focus on improving total shareholder returns, we are overseeing a very effective execution of the Company’s strategy and we are confident that this strategy will generate significant value for ALL
Since the separation from
Navient’s strategy of maximizing portfolio cash flows has driven significant returns. We have successfully balanced the need to de-risk the Company’s capital structure to optimize credit ratings with the need to provide shareholders with a market-leading pay-out ratio. For example:
- We have used over 88% of the excess cash flows generated by operations since
June 30, 2014(which was shortly following our separation from Sallie Mae) to reduce unsecured debt from $17.7 billion to $11.5 billionand to return $3.7 billionin capital to shareholders through share repurchases and dividends. This return of capital to shareholders equates to a 121% total payout ratio, which ranks 2nd among the top 24 KBW Bank Index (BKX) constituents and 7th among the top 68 S&P500 Financials constituents.
- Our team continues to be laser focused on maximizing the cash flows from our education loan portfolios, and with a strong capital position, we are targeting a return of nearly
$600 millionto shareholders in 2019 and a further decrease in unsecured debt.
- We have used a smaller portion of our cash flow since separation to acquire over
$32 billionof Education Loans, including $23.6 billionin Federal Family Education Loan Program acquisitions and $8.7 billionof private education loans. These acquisitions leveraged our scale, data and experience to drive attractive returns and have been overwhelmingly supported by investors.
- Our acquisitions, including those of Duncan Solutions and Earnest, have leveraged Navient’s core competencies and fixed-cost base while providing additional earnings and strong cash flow generation, with minimal capital investment required post-acquisition.
The Company has a consistent track record of improving operating efficiency and aggressively managing expenses while maintaining a superior customer experience. Since the separation from
With an optimized capital structure, strong credit quality and best-in-class efficiency ratio,
Our Company has generated significant momentum as the management team is successfully executing the right strategy to deliver increasing and sustainable value to all shareholders. The changes we have implemented over the past few years have begun to bear fruit. Despite a year-to-date total shareholder return of
over 51%, ranking 1st among the BKX Index and 2nd among the
Attorney General lawsuits, which we believe are without merit. While we have worked tirelessly to keep these lawsuits and inquiries from impacting the operation of the Company, we do recognize that for you, our shareholders, our stock performance has been impacted. We are constantly examining ways to put these lawsuits behind us.
Your Board and management team understand that your decision to vote for Board nominees will be determined by who you believe can deliver greater value to shareholders. Given the collective operational expertise of your current Board and management team, our focus on executing our strategy of maximizing portfolio cash flows, delivering value with new loan originations and business processing solutions and our unwavering commitment to improving operating efficiency and optimizing capital allocation, we believe the Board’s nominees are best positioned to grow
YOUR BOARD ENGAGED WITH CANYON IN GOOD FAITH REGARDING THEIR ATTEMPT TO ACQUIRE NAVIENT AND ACTED IN THE BEST INTERESTS OF ALL SHAREHOLDERS
Your Board has listened carefully to Canyon—as we do to all shareholders. Last summer, the Board carefully evaluated Canyon’s recommended director candidates and added Mr. Arnold to our Board. Subsequently, when Canyon and Platinum approached us regarding a potential acquisition of the Company, the Board and management team engaged with them in good faith. Indeed, the Company provided Canyon and Platinum with substantial information and data over a four-month period, including nearly a terabyte of data containing anonymized loan-level information regarding the portfolio of education loans owned by the Company and the entire general ledger of the Company. The Company also provided Canyon and Platinum with meaningful access to the Board and management and invested over 2,000 hours of management time in support of Canyon’s and Platinum’s due diligence review of the Company.
During that process, Canyon’s financial advisor communicated an informal price range of
Canyon’s highly conditional
Surprisingly, Canyon and Platinum subsequently sent a highly opportunistic low premium proposal with a price of
The initial proposal did not include any explanation of why the price was significantly lower than the
above this range. As such, after careful review and consideration in consultation with our financial and legal advisors, the members of the Board, one of whom was recommended by Canyon, unanimously rejected Canyon’s proposal.
Canyon’s proposal had substantial deficiencies with no commitments to resolution.
In addition to having an unacceptably low price, Canyon’s proposal did not meet the criteria of a bona fide proposal that was fully financed and appropriately addressed the outstanding issues that were continuously raised by the Board and management since the start of the engagement. In fact, Canyon repeatedly evaded direct questions relating to their due diligence review and how their proposal would be de-risked, including how Canyon and Platinum would address the change of control provisions in the Company’s outstanding unsecured debt, how they would address the liquidity needs associated with our warehouse financing facilities or whether their proposal would be contingent on addressing the litigation and regulatory matters the Company is facing. These deficiencies raised serious questions about both the credibility of the bidders and their true understanding of
However, the full Navient Board met with Canyon and their advisors regarding the proposal, opting to remain committed to shareholder engagement. At this meeting, Canyon abruptly notified the Company that they were withdrawing their proposal and indicated their intention to nominate a slate of directors for election at the Annual
NAVIENT’S HIGHLY QUALIFIED, INDEPENDENT AND REFRESHED BOARD IS COMMITTED AND BEST QUALIFIED TO EXECUTE THE STRATEGY TO DRIVE VALUE CREATION FOR ALL NAVIENT SHAREHOLDERS
Navient’s world-class, independent and continuously refreshed Board has been instrumental in the development and execution of Navient’s strategy and has extensive experience in financial services and higher education. The Board is comprised of business leaders with expertise in operations, M&A, investments, information security and regulatory matters, along with track records of transforming companies and creating substantial value.
Since 2014, we have added seven new Board members, with two new directors added since 2017, and have implemented a mandatory retirement age and tenure limits for directors, which have given you as shareholders transparency into our past and future efforts to refresh our Board, demonstrating strong governance practices with active oversight of risks, financial reporting, compliance programs, and compensation policies.
In 2018, our Board was recognized by the Forum of Executive Women as a “Champion of Board Diversity” among
VOTE THE ENCLOSED WHITE PROXY CARD TODAY AND DISCARD THE GOLD PROXY CARD IN ORDER TO BLOCK CANYON’S SUBSTANTIALLY UNDERVALUED PROPOSAL
We strongly urge you to vote to re-elect Navient’s entire slate of 10 highly qualified and experienced nominees. Your vote is very important; no matter how many shares you own. Support your Board and your investment by voting the WHITE proxy card TODAY.
Please follow the instructions on the enclosed WHITE proxy card to vote by Internet, telephone or sign, date and return the enclosed WHITE proxy card in the postage-paid envelope provided. Do not return any Gold proxy card you may receive from Canyon.
We thank you for your continued support and we look forward to continuing our engagement with you as we work to deliver substantial shareholder value in the years ahead.
|William M. Diefenderfer, III||Jack Remondi|
|Chairman of the Board||President and CEO|
For more information, please visit www.votenavient.com.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This release contains “forward-looking statements,” within the meaning of the federal securities laws, about our business and prospects and other information that is based on management’s current expectations as of the date of this release. Statements that are not historical facts, including statements about the Company’s beliefs, opinions or expectations and statements that assume or are dependent upon future events, are forward-looking statements and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “may,” “could,” “should,” “goal,” or
“target.” Forward-looking statements are subject to risks, uncertainties, assumptions and other factors that may cause actual results to be materially different from those reflected in such forward-looking statements. For
NOTE REGARDING USE OF NON-GAAP FINANCIAL MEASURES
In addition to financial results reported on a GAAP basis,
The difference between the company’s Core Earnings and its GAAP results is that Core Earnings excludes the impacts of: (1) mark-to-market gains/losses on derivatives and (2) goodwill and acquired intangible asset amortization and impairment. Management uses Core Earnings in making decisions regarding the company’s performance and
the allocation of corporate resources and, as a result, our segment results are presented using Core Earnings. In addition, Navient’s equity investors, credit rating agencies and debt capital investors use these Core Earnings measures to monitor the company’s business performance. See “Core Earnings” on page 7 of Exhibit 99.2 of our current report on Form 8-K filed with the
Notable Items Impacting Total Expenses Compared to Prior Periods1
|($ In millions)||Q4 18||Q4 17||2018||2017|
|Reported Core Earnings Expenses||$256||$289||$997||$995|
|Restructuring & Reorganization Expenses||$4||$29||$13||$29|
|Duncan & Earnest Operating Expenses||$22||$22||$100||$30|
|3rd Party Transfer Fee||-||-||$9||-|
|Transition Services Agreement||$7||-||$16||-|
|Impact of ASC 606||$13||-||$51||-|
|Adjusted Core Earnings Expenses||$202||$235||$819||$922|
|Year over Year Change in Adjusted Core Earnings Expenses||(14%)||(11%)|
Differences Between Core Earnings And GAAP
|Quarters Ended||Years Ended|
|Core Earnings adjustments to GAAP:
(Dollars in Millions)
|Dec. 31, 2018||Dec. 31, 2017||Dec. 31,
|GAAP net income (loss)||$72||($84)||$395||$292|
|Net impact of derivative accounting||59||(47)||90||(45)|
|Net impact of goodwill and acquired intangible assets||8||5||47||23|
|Net income tax effect||1||(5)||(13)||(19)|
|Total Core Earnings adjustments to GAAP||68||(47)||124||(41)|
|Core Earnings net income (loss)||$140||$(131)||$519||$251|
Notes on Non-GAAP Financial Measures
(Dollars in Millions)
In addition to financial results reported on a GAAP basis,
- Core Earnings –The difference between the company’s Core Earnings and its GAAP results is that Core Earnings excludes the impacts of: (1) mark-to-market gains/losses on derivatives and (2) goodwill and acquired intangible asset amortization and impairment. Management uses Core Earnings in making decisions regarding the company’s performance and the allocation of corporate resources and, as a result, our segment results are presented using Core Earnings. In addition, Navient’s equity investors, credit rating agencies and debt capital investors use these Core Earnings measures to monitor the company’s business performance. For further detail and reconciliation, see pages 13-22 of Navient’s fourth-quarter earnings release.
- Core Earnings Return on Equity (CEROE) – Core Earnings Return on Equity is calculated as Core Net income, excluding restructuring and regulatory-related expenses, divided by the quarterly average of GAAP equity for the period. This measure allows management, as well as investors and analysts, to measure the company’s use of its equity. The calculation for 2018 is as follows:
|Adjusted Core Earnings Net income||=||$5522||=||15||%|
|Average Equity||($3,519 + $3,724+ $3,714 + $3,637) / 4|
- Core Earnings Efficiency Ratio – The Core Earnings Efficiency Ratio measures the company’s Core Earnings Expenses, excluding restructuring and regulatory-related expenses, relative to its Adjusted Core Earnings Revenue. This ratio can be calculated by dividing Core Earnings Expenses, excluding restructuring and regulatory-related expenses, by Adjusted Core Earnings Revenue. Adjusted Core Earnings Revenue is derived by adding provision for loan losses, and excluding gains or loss on debt repurchases, to Total Core Earnings Revenue. This is a useful measure to management as we plan and forecast, as it removes variables that cannot be easily predicted in advance. By using this measure, management can make better short-term and long-term decisions related to expense management and allocation. The calculation for 2018 is as follows:
|Adjusted Core Earnings Expense||=||$9552||=||47||%|
|Adjusted Core Earnings Revenue||$1,662 + $370 - $9|
- Tangible Net Asset Ratio (TNA) – The Tangible Net Asset Ratio measures the amount of assets available to retire the Company’s unsecured debt. Management and Navient’s equity investors, credit rating agencies and debt capital investors use this ratio to monitor and make decisions about the appropriate level of unsecured funding. It is measured by dividing Tangible net assets by par unsecured debt. For further detail and reconciliation, see page 23 of Navient’s fourth-quarter earnings release.
- Earnings before Interest, Taxes, Depreciation and Amortization Expense (“EBITDA”) – This metric measures the operating performance of the Business Processing segment and is used by management and our equity investors to monitor operating performance and determine the value of those businesses. For
further detail and reconciliation, see page 23 of Navient’s fourth-quarter earnings release.
1 Items are non-GAAP financial measures. By using these measures, management can make better short-term and long-term decisions related to expense management and allocation.
Source: Navient Corporation