J.C. Penney Trims Poison Pill To Guard $2B In Future Tax Benefits

By Mani
Updated on

J.C. Penney Company, Inc. (NYSE:JCP) made changes to its shareholder rights plan to preserve $2 billion in future tax credits.

J.C. Penney Company, Inc. (NYSE:JCP) trimmed the threshold for triggering a takeover defense plan to protect about $2 billion in future tax credits.

The reduced poison pill trigger would facilitate the retailer to benefit from carry forward of net operating loss.

J.C. Penney’s rights plan

In August, J.C. Penney Company, Inc. (NYSE:JCP) announced a shareholder rights program that sought to protect the company from a takeover attempt. The retailer’s shareholder rights plan essentially related to distribution of rights to shareholders. Those rights can only be used if a shareholder, or a group, has control of more than 10% of the company. The rights would allow investors to acquire additional shares valued at $110 in the company at an exercise price of $55.

However, J.C. Penney said today it was lowering the trigger on its poison pill to 4.9% from 10%, as any change in stock ownership of 5% or more could ‘substantially limit’ the company’s ability to use its net operating loss carry forwards under the tax code.

$2 billion losses

J.C. Penney Company, Inc. (NYSE:JCP) announced the updated plan as the Internal Revenue Service considers 5% of the shares to be the level at which an ownership change has occurred. The retailer said an ownership change would limit its ability to use its over $2 billion in so-called net operating loss carry forwards to lower future tax liabilities.

Its chief executive officer Mike Ullman has reversed the decline in the retailer’s same-store sales by reviving popular private-label brands and bringing back sales events.

However, thanks to former CEO Ron Johnson’s destructive attempts, J.C. Penney Company, Inc. (NYSE:JCP) logged over $2 billion in losses in 2012 and 2013. The net operating loss carry-forwards can be used to offset future taxable income and so reduce federal income tax liability. The recent amendments to the company’s rights plan extend the expiration date from August 20 to January 26, 2017.

According to the revised rights plan, if any person or group acquires 4.9% or more of the outstanding shares of common stock without the approval of the board, there would be a triggering event causing significant dilution in the ownership interest of such person or group.

Leave a Comment