November 27, 2012

Pills on the Rise

From this Cooley news brief: This article in the WSJ reports that poison pills are on the rise – not your usual anti-predator pills, but rather pills to protect tax-loss carry forwards. According to the article, 115 shareholder rights plans have been adopted or amended since 2008 to protect tax-loss carry forwards generated during the financial crisis. During the preceding decade, only 26 poison pills were adopted for this purpose. This year “through Nov. 5, companies have adopted or amended 11 rights plans specifically to protect these assets, compared with 24 last year and a peak of 45 in 2009 during the depths of the crisis.” The trigger is typically set at 5%. The article notes that, if U.S. corporate tax rates are cut, the carrying value of these tax assets would be reduced, but probably not enough to suggest that they wouldn’t still be worth protecting.