CF Industries Holdings, Inc. (NYSE: CF) announced that its Board of Directors has adopted a one-year tax benefits preservation plan (the "Plan") designed to preserve the Company's ability to utilize its net operating losses and certain other tax assets. The Company estimates that it will generate a federal tax net operating loss in excess of $2 billion in 2016, arising principally from accelerated depreciation on the Company’s capacity expansion projects. The Plan is similar to plans adopted by other public companies with significant tax attributes, and was not adopted in response to any specific takeover threat or accumulation of the Company’s stock.
The purpose of the Plan is to preserve the Company's ability to use its tax assets to offset taxable income, which would be substantially limited if the Company experienced an "ownership change" as defined under Section 382 of the Internal Revenue Code and related Internal Revenue Service pronouncements. In general, an ownership change would occur if the Company's "5-percent shareholders," as defined under Section 382, collectively increase their ownership in the Company by more than 50 percentage points during the relevant testing period.
Under the Plan, the Company is issuing one Right for each share of its common stock outstanding at the close of business on September 16, 2016. The Rights are not taxable to stockholders. Stockholders are not required to take any action to receive the Rights. The Rights will expire on the earliest of (i) the close of business on September 5, 2017, (ii) the time at which the Rights are redeemed or exchanged under the Plan, and (iii) the time at which the Board determines that the Plan is no longer necessary or desirable for the preservation of the tax assets.
Pursuant to the Plan, if a shareholder (or group) becomes a 5-percent shareholder after adoption of the Plan without meeting certain customary exceptions, the Rights would become exercisable and entitle stockholders (other than the 5-percent shareholder or group) to purchase additional shares of CF at a significant discount, resulting in significant dilution in the economic interest and voting power of the 5-percent shareholder or group. 5-percent shareholders existing at the time of adoption of the Plan are grandfathered and will only cause the Rights to distribute and become exercisable if they acquire an additional 1% of the Company's outstanding shares. Under the Plan, the Board has the discretion to exempt certain transactions and persons whose acquisitions of the Company’s common stock is determined by the Board not to impair the availability of the Company’s tax assets.