Windstream Acts to Protect $1.2B Tax Asset

The telecom firm says its shareholders rights plan is not an anti-takeover defense but will preserve net operating loss carryforwards.
Matthew HellerSeptember 21, 2015

Windstream Holdings has adopted a shareholder rights plan to protect valuable tax assets that would be at risk if a shareholder took a large stake in the provider of cloud computing, broadband, and voice services.

Net operating loss carryforwards can be used in certain circumstances to offset future taxable income and reduce federal income taxes. As of June 30, 2015, Windstream had $1.2 billion in NOLs.

In a news release, the company said its ability to use the NOLs would be limited if there was a change in its ownership whereby a shareholder holding a stake of at least 5% increased its holdings by more than 50% during a three-year period.

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The Windstream board “determined that the rights plan was warranted and in the best interest of all shareholders due to the substantial size of the NOLs, the importance of these potential benefits for future cash flows, and the risk of Windstream experiencing an ‘ownership change’ as defined by IRC Section 382,” the release said.

Under the plan, Windstream shareholders as of the close of business on Sept. 28 will receive one preferred share purchase right for each share of common stock outstanding. If a shareholder acquires beneficial ownership of 4.9% or more of the stock without prior approval of the board, the rights would  entitle rights holders to purchase additional shares at a significant discount, resulting in significant dilution of the value and voting power of the shares.

Windstream said the plan “is not meant to be an anti-takeover measure” and that the board would be able to exempt acquisitions of stock “if it determines that doing so would not limit or impair the availability of the NOLs.”

The company also warned that notwithstanding the dilution, the plan “may not prevent one or more securityholders of Windstream from … engaging in buying and selling activity that may have an adverse impact on Windstream’s tax attributes.”