Leap Wireless (NASDAQ:LEAP) said it will adopt a new tax strategy that could be a way for the struggling prepaid unlimited carrier to avoid a takeover bid.
The plan is similar in many respects to so-called "poison pills" companies take to avoid hostile takeovers. Leap said it will adopt a new plan to preserve the tax benefit from net operating loss carryforwards. The carryforwards are an accounting technique that applies a company's losses to future profits so that it can reduce its tax liability. Leap said it had loss carryforwards of about $1.7 billion as of June 30. If a shareholder who holds at least 5 percent of the company's stock increases their holdings by more than 50 percent, Leap could lose the tax benefit.
Under Leap's new plan, if an entity acquires 5 percent or more of Leap's shares, or adds to a stake of 5 percent or more, Leap will issue preferred shares to existing shareholders and dilute those stakes. Leap CEO Doug Hutcheson said in a statement that recent trading of the company's stock "has increased the risk of an ownership change under the tax rules."
The company, which sells services under its Cricket brand, saw its stock reach a 52-week low on Aug. 12, and the stock has lost as much as 9 percent of its value since early August. Leap's stock was around $11.11 per share in trading this morning.
On Aug. 3, Leap announced a second-quarter net loss of $19.3 million and a net subscriber loss of 112,000 customers. The company also inked a national roaming deal with Sprint Nextel (NYSE:S), essentially becoming an MVNO of Sprint. (Analysts said the deal with Sprint likely took a merger with rival MetroPCS (NASDAQ:PCS) off the table.) Further, Leap introduced a tiered pricing model for data, announced its first BlackBerry from Research In Motion (NASDAQ:RIMM), and revamped its calling plans.
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