J.C. Penney Co. Inc. said its board has amended and extended its stockholder rights plan to preserve its tax flexibility.
The amendments approved by the Penney’s board include lowering the beneficial ownership threshold for any person or group to qualify as an “acquiring person” to 4.9 percent from 10 percent and extending the plan’s expiration date to Jan. 26, 2017, from its current termination date of Aug. 20.
The plan, sometimes called a poison pill, was changed to protect the company’s tax benefits derived from net operating loss — or NOL — carryforwards. Those NOLs are valued at over $2 billion, and can be used under certain circumstances to offset future taxable income and reduce federal income tax liability.
The company said that, under the federal tax code, its ability to use the NOLs would be substantially limited should there be an “ownership change” as defined under a particular provision of the Internal Revenue Code.
With the change, the acquisition of 4.9 percent or more of the outstanding common shares of the company’s stock without the approval of the board would be deemed a triggering event that would cause a significant dilution of ownership interest.
The retailer said the changes take effect immediately. In addition, the amended plan will be submitted to shareholders for a vote at the company’s annual meeting scheduled for May.
Ted D. Rosen, a partner in the corporate practice at the law firm of Fox Rothschild, said NOLs typically can be applied to the past two to three years for a tax credit.
Sometimes NOLs are applied to future income tax payments. These can be seven to 10 years, depending on the jurisdiction.
The latest move by Penney’s is in contrast to that of Abercrombie & Fitch Co.’s board’s decision, also disclosed Tuesday, to end its shareholder rights plan.
Penney’s said the “amended rights plan is similar to plans adopted by other public companies with significant net operating losses.”
With merger and acquisition activity heating up last year and lots of cash from private equity players and others ready to make deals, poison pills have been more prevalent in recent months.
Jos. A. Bank Clothiers Inc. amended its poison pill to kick in when a party or parties deemed hostile acquired a 10 percent interest in the firm, cutting the percentage in half and aligning it with the threshold in The Men’s Wearhouse Inc.’s plan just before MW began a tender offer to acquire Bank from its shareholders for about $1.61 billion. Aéropostale Inc., considered a possible takeover target because of its depressed stock price, adopted a plan in November that would be activated if an investor acquired 10 percent of the company or if a passive institutional investor reached 15 percent of ownership.
Shares of Penney’s fell 1.4 percent to $6.42 in trading on the New York Stock Exchange Tuesday.
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