Leap Wireless (NASDAQ:LEAP) is once again adopting a tax strategy to protect itself from any potential takeover bids, reprising a gambit it first announced last year.
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 $2.3 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.
The tactic is meant to serve as a deterrent to any party acquiring beneficial ownership of more than 4.99 percent of Leap's outstanding common stock.
Leap adopted the plan in September 2010 but then ended it in June when it felt that trading in its common stock had decreased. However, the company said that since then the value for wireless companies have declined and there has been a sharp uptick in the trading of Leap's common stock.
What makes this plan different than last year's is that activist investor Pentwater Capital Management hiked its stake in the flat-rate carrier to 5.7 percent. Leap struck a deal with Pentwater in late July to end a disagreement over management, and as a result Leap added two new board directors pushed by Pentwater. However, despite the accord, all is not rosy between Leap and Pentwater. Pentwater complained earlier last month that Leap was letting Leap Chairman Mark Rachesky's investment firm, MHR, gain control of Leap without paying a premium for the shares. Under the new tax plan, neither Pentwater nor Rachesky's firm can increase their stakes without diluting the value of their holdings.
- see this release
- see this Reuters article
- see this Dow Jonews Newswires article (sub. req.)
- see this North Country Times article
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