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Navient May Still Make a Deal With Canyon Capital, Analysts Say

Felice Maranz
Navient May Still Make a Deal With Canyon Capital, Analysts Say

(Bloomberg) -- Canyon Capital Advisors abandoning its takeover approach for Navient Corp., and instead nominating directors for the student-loan servicer’s board, may not mean they won’t eventually agree to a deal, Wall Street analysts say.

Navient stock is dropping 5.2 percent in pre-market trading. Shares had rallied about 50 percent since hitting a low on Dec. 24, fueled in part by speculation over Canyon’s $3.1 billion takeover offer.

Here’s a sample of what some analysts are saying:

Credit Suisse, Moshe Orenbuch

Canyon’s decision to withdraw its initial expression of interest “is a logical ‘next step’ and could encourage Navient to come to the table and eventually sell at a reasonable price,” Orenbuch wrote in a note.

The alternative, he said, “entails a public fight for board seats and change in business strategy that would likely indicate greater focus on expenses, balance sheet and capital efficiencies.” Credit Suisse reiterates its outperform rating, price target of $13.50.

KBW, Sanjay Sakhrani

Canyon’s decision was “the middle path of what could have occurred,” between an “optimal case” of a formal bid for Navient, versus a “worst case of Canyon exiting its stake,” Sakhrani wrote in a note. He flagged Canyon’s remaining a shareholder and looking for independent board seats.

“This news does not take away from our view that the stock remains cheap at current levels,” Sakhrani said. Rates Navient outperform, with a $22 price target.

Jefferies, John Hecht

Though Navient shares “may see some modest weakness,” Hecht notes that “Canyon is not entirely removed from the situation and the potential for an acquisition at the right price may be an eventuality.”

Hecht sees the near-term focus pivoting to Navient’s shareholder return priorities, and the realization of cash flows from student loan portfolios. Jefferies sum-of-the-parts value for Navient would be at least $17, but, that “assumes a significant amount of capital return and limited capital deployment into ongoing growth opportunities.”

Hecht believes the company is “in the midst of a strategic shift,” including reinvesting capital returns to shareholders in its business. That may be a focus for “activist shareholders who may prefer a more simplified strategy with a greater emphasis on capital returns.” Jefferies rates Navient stock hold, with a price target of $11.

To contact the reporter on this story: Felice Maranz in New York at fmaranz@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm

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