Gastar adopts rights plan to "protect" NOLs

[ddlopata084]

Seems self explanatory. Anyone have thoughts?

Gastar Exploration Adopts Tax Benefit Preservation Plan to Preserve Valuable Net Operating Losses



HOUSTON, Jan. 19, 2016 /PRNewswire/ -- Gastar Exploration Inc. (NYSE MKT: GST) ("Gastar" or the "Company") today announced that its Board of Directors has adopted a Net Operating Loss (NOL) Shareholder Rights Agreement (the "Rights Plan") designed to preserve its substantial tax assets. As of December 31, 2014, Gastar had cumulative net operating loss carryforwards of approximately $447.0 million, which can be utilized in certain circumstances to offset future U.S. taxable income. The Company further expects its cumulative net operating loss carryforwards to increase as of December 31, 2015.

The Rights Plan is intended to protect Gastar's tax benefits and to allow all of Gastar's stockholders to realize the long-term value of their investment in Gastar. The Board adopted the Rights Plan after considering, among other matters, the estimated value of the tax benefits, the potential for diminution upon an ownership change, and the risk of an ownership change occurring, including the recently disclosed accumulations of Gastar stock. Gastar's ability to use these tax benefits would be substantially limited if it were to experience an "ownership change" as defined under Section 382 of the Internal Revenue Code. An ownership change would occur if stockholders that own (or are deemed to own) at least five percent or more of Gastar's outstanding common stock increased their cumulative ownership in the Company by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. The Rights Plan reduces the likelihood that changes in Gastar's investor base would limit Gastar's future use of its tax benefits, which would significantly impair the value of the benefits to all stockholders. The Company believes that no ownership change as defined in Section 382 has occurred as of the date of this press release.

To implement the Rights Plan, the Gastar Board of Directors declared a non-taxable dividend of one preferred share purchase right for each outstanding share of its common stock. The rights will be exercisable if a person or group acquires 4.9% or more of Gastar common stock. The rights will also be exercisable if a person or group that already owns 4.9% or more of Gastar common stock acquires additional shares (other than as a result of a dividend or a stock split). Gastar's existing stockholders that beneficially own in excess of 4.9% of the common stock will be "grandfathered in" at their current ownership level. If the rights become exercisable, all holders of rights, other than the person or group triggering the rights, will be entitled to purchase Gastar common stock at a 50% discount. Rights held by the person or group triggering the rights will become void and will not be exercisable.

The rights are not taxable to Gastar stockholders. The rights will trade with Gastar's common stock and will expire on January 18, 2017 unless the Gastar stockholders ratify the Rights Plan prior to such date, in which case the term of the Rights Plan is extended to three years. The Gastar Board may terminate the Rights Plan or redeem the rights prior to the time the rights are triggered.

[mkarpoff]

Is this a poison pill? If so, great.

[bearcatbob]

Is this a poison pill? If so, great.

Anyone with a position in shares like GST who have a loss are now threatened in my mind by very low price buyouts that basically eliminate the price recovery opportunity we all see coming. This move by GST should be the model for the industry.

[bigtex]

Dan could you put this into something i can understand

[dan_s]

Not sure I can make it much clearer than the press release. In a nut shell, there is no impact at all unless someone acquires more than 4.9% of GST common stock, who is not there already.

Net Operating Loss Carryforwards are extremely valuable to a small-cap E&P. They shield future earnings from current taxation. GST is just trying to protect that value.

IMO this is good news for those of us that own common stock. In the event of a takeover attempt, Gastar is giving us the right to buy more shares at half price. That is a good thing.

BTW I get several calls per month from VC firms that are "lurking"; waiting for opportunities to take controlling interests in oversold small-caps. We aren't the only ones that see the HUGE upside that Gastar has in STACK.

PS: The change of control rules in our Federal tax code sucks IMHO. They are designed to eliminate the selling of tax benefits, but what they do is put up another barrier to sound equity investments in struggling companies that really need the capital.

[dan_s]

SEC Filing: John Kleinheinz (Global Undervalued Securities Master Fund, FtWorth, Texas) increasing his common share stake in GST by about 3 million shares just in the last week or so. His Fund also owns $35 Million face value of the Bonds. John Kleinheinz and/or his fund now own 12.7% of the outstanding float of GST.