Cloud Peak Energy Inc.'s board of directors adopted a stockholder rights plan to protect its tax benefits from risks posed by changes in stock ownership, according to a Jan. 14 SEC filing.
The plan seeks to preserve Cloud Peak's substantial federal net operating loss carryforwards and other tax carryforwards, which can help offset taxable income in the future. On Dec. 31, 2018, the coal producer had an estimated $300 million in tax carryforwards. The decision was made with consideration to the estimated potential value of Cloud Peak's tax benefits and their potential to decrease following changes in ownership of 5% stockholders as well as the "risk of such an ownership change occurring due to the volatility and trading activity in the company's common stock," the filing said.
Cloud Peak told investors in November 2018 that it was performing a strategic review whose outcome could include selling the company. It also received a delisting warning from the NYSE in December 2018 after its average trading price closed at less than $1 for 30 consecutive days. Shares closed at 31 cents on Jan. 14.
If stockholders owning at least 5% of the company's common stock increased their ownership by more than 50 percentage points from their lowest ownership percentage within a rolling three-year period, Cloud Peak would have limited ability to use its net operating loss carryforwards.
The board declared a nontaxable dividend of one preferred share purchase right for each outstanding share of its common stock. Those rights will be used if a person or group acquires 4.95% or more of the company's outstanding common stock or if an entity owns 4.95% or more shares and acquires additional shares, excluding those resulting from a dividend or stock split. Those owning 4.95% or more of the company will be grandfathered in at their ownership level.
Once the rights become exercisable, rights holders can purchase 50%-discounted common stock shares. Right holders will not be allowed to receive stock shares if doing so would result in the holder owning more than 4.95% of outstanding stocks.
The rights, which are nontaxable to Cloud Peak's stockholders, will trade as common stock until they expire at the first day following the company's annual stockholder meeting. Should the stockholders approve the plan, it will be extended to Jan. 11, 2022. The board can terminate or redeem the rights in the meantime.