Gannett, the owner of USA TODAY and more than 260 other daily publications, announced Tuesday that its board had implemented a plan to ensure that the company maintains access to about $435 million in tax benefits.
The company adopted what Wall Street calls a “poison pill,” which is a measure aimed at blocking investors from suddenly accumulating a large portion of the company without a board’s blessing.
In this case, Gannett adopted the plan because of a tax law that would significantly reduce its tax net operating loss carryforwards, known as NOLs, if investors owning more than 5% of the company’s stock acquired shares totaling 50% or more.
From a technical perspective, the “shareholder rights plan” involves the declaration of a non-taxable dividend of one preferred share purchase right for each outstanding share of common stock. Those rights can only be exercised if an investor acquires 4.99% or more of Gannett, which the board must now authorize. Existing investors owning more than 4.99% will be “grandfathered in” and will be subject to the rights plan if they acquire an additional 0.5%.
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Investors reacted positively in the morning, driving shares up more than 50%. But the stock closed down 2% to 64 cents as investors fret about declining advertising revenue during the coronavirus pandemic.
The tax benefits are treated as helpful to preserving Gannett’s cash flow because they can offset future federal taxable income.
Gannett is in the midst of a cost-cutting campaign as it deals with a decline in advertising due to the COVID-19 crisis.
The company said April 1 that it suspended its dividend. It announced plans to implement $100 million to $125 million in cost cuts, including executive pay reductions and three one-week furloughs for newsroom employees. The cuts announced April 1 are in addition to planned reductions tied to the merger of New Media Investment Group and the “old” Gannett, which formed the “new” Gannett when the deal was closed in November.
Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.