Risk & Compliance

Charlotte Russe Tries a Poison Pill

Mall-based women's retailer sees no specific takeover threat, but decides to adopt a rights plan — even as others have moved away from the strategy.
Stephen TaubAugust 14, 2008

Women’s mall-based specialty retailer Charlotte Russe Holding adopted a stockholder rights plan, saying it isn’t designed to ward off any specific takeover threat.

The San Diego-based company did say, however, that “it should deter any attempt to acquire Charlotte Russe in a manner or on terms not approved by Charlotte Russe’s board of directors and, in some cases, the stockholders.”

The company’s news release emphasized that the plan, a variety of poison pill, is designed to enable all shareholders to realize the full value of their investment and to provide for fair and equal treatment for all stockholders in the event that an unsolicited attempt is made to acquire Charlotte Russe.

Like most retailers, Charlotte Russe has shares that currently are trading toward the bottom of their 52-week range, making the company somewhat vulnerable to an unsolicited takeover offer.

Although the trend in recent years is for companies to scrap their poison pills, in recent years a growing number of smaller companies have been instituting these plans. Charlotte Russe’s market capitalization is about $260 million.

Under its plan, the rights will be distributed as a nontaxable dividend, and will expire 10 years from the record date. The rights will be exercisable only if a person or group acquires 15 percent or more of Charlotte Russe’s common stock or announces a tender offer for 15 percent or more of Charlotte Russe’s shares. If a person acquires 15 percent or more of Charlotte Russe common, all rights holders except the buyer will be entitled to acquire Charlotte Russe common at a discount. “The effect will be to discourage acquisitions of more than 15 percent of Charlotte Russe’s Common Stock without negotiations with the Board,” the company noted.