ClarivatePlc (NYSE: CLVT) today announced that its Board of Directors adopted a tax benefits preservation plan (the “Tax Benefits Preservation Plan”) designed to protect the availability of Clarivate’s U.S. net operating loss carryforwards (“NOLs”) and certain other U.S. tax attributes, which can be utilized in certain circumstances to offset future U.S. tax liabilities. As of September 30, 2022, Clarivate estimates that it had U.S. federal net operating loss and interest carryforwards in excess of $1.0 billion.
The Tax Benefits Preservation Plan will expire on October 31, 2023, unless terminated earlier in accordance with its terms.
Clarivate’s ability to use these NOLs and other tax attributes would be substantially limited if it experienced an “ownership change” within the meaning of Section 382 of the Internal Revenue Code. In general, a company would undergo an ownership change if its “5% shareholders” (determined under Section 382) increased their ownership of such company’s stock by more than 50 percentage points over a rolling three-year period. The Tax Benefits Preservation Plan is intended to reduce the likelihood of such an ownership change at Clarivate by deterring any person or group that would be treated as a 5% shareholder from acquiring beneficial ownership of 4.9% or more of Clarivate’s outstanding ordinary shares or other acquisitions that cause a person to be the owner of 4.9% or more of Clarivate’s stock for tax purposes, and deterring existing shareholders who currently meet or exceed this ownership threshold from acquiring additional Clarivate stock.
The Tax Benefits Preservation Plan is similar to those adopted by other public companies with significant U.S. NOLs and other tax attributes. The Tax Benefits Preservation Plan is not designed to prevent any action that the Board determines to be in the best interest of Clarivate and its shareholders, and it will help to ensure that the Board of Directors remains in the best position to discharge its fiduciary duties.
Pursuant to the Tax Benefits Preservation Plan, Clarivate will issue, by means of a dividend, one preferred share purchase right (the “Rights”) for each outstanding Clarivate ordinary share held by shareholders of record at the close of business on January 1, 2023. The distribution of the Rights is not taxable to Clarivate’s shareholders. Under the Tax Benefits Preservation Plan, the Rights will initially trade with Clarivate’s ordinary shares and will generally become exercisable only if a person or group that would be treated as a 5% shareholder acquires, as measured for tax purposes, either (i) 4.9% or more of Clarivate’s outstanding ordinary shares or (ii) 4.9% or more (by value) of the company’s capital stock. Acquisitions of Clarivate’s outstanding 5.25% Series A mandatory convertible preferred shares are taken into account for purposes of these ownership thresholds, determined on an as-converted basis in accordance with applicable U.S. securities laws or on the basis of the value of such shares, as applicable. Existing shareholders who currently meet or exceed this 4.9% ownership threshold will be “grandfathered in” at their current ownership level but will trigger the Tax Benefits Preservation Plan if they acquire any additional stock from the date of this initial announcement. Clarivate’s Board of Directors has the discretion to exempt any person or group from the provisions of the Tax Benefits Preservation Plan.
If the Rights become exercisable, all holders of Rights, other than the person or group triggering the Rights, will be entitled to purchase for $42.00 (the “Purchase Price”) for each Right, a number of one-thousandths of a share of a new series of participating cumulative preferred shares or Clarivate’s ordinary shares having an aggregate market value of twice the Purchase Price. Rights held by the person or group triggering the Rights will become void and will not be exercisable.
Additional information about the Tax Benefits Preservation Plan is available in the Form 8-K filed by Clarivate with the U.S. Securities and Exchange Commission.
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