M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Thursday, March 10, 2011

AIG adopts an NOL pill

AIG annoucend yesterday that it had adopted what it calls a "Tax Asset Protection Plan".  To the rest of us, that's an NOL pill.   The Delaware Supreme Court ruled in the Versata v Selectica case last fall that boards can reasonably adopt these NOL pills to protect corporate assets, like net operating losses.  The issue with them at the time was two-fold.  First, they are ostensibly not takeover defenses, but intended to protect a corporation ability to access its net operating losses.  Second, their trigger is usually set at 5% - above that point and the firm loses its NOLs.  The court looked at them in Versata and decided they were a reasonable response to the threat of losing a valuable corporate asset.  

NOLs allow companies to reduce their tax liabilities.  Under the tax laws, a company may lose access to its NOLs in the event a single shareholder acquires more than 5% of the stock of the corporation. The pill prevents shareholders from accumulating a large enough block to trigger the loss of the NOLs.  I suppose the only reason that AIG has any NOLs left on its books is because the largest single stockholder, the US government (92%) doesn't file a tax return... 

For your file, here's a copy of AIG's shareholder rights plan Tax Asset Protection Plan


Update:  I've been working my way through Samuel Thompson's 4 volume, Mergers, Acquisitions, and Tender Offers recently.  He's got a very nice summary of NOL pills and the state of the law governing their use.  If you have a library, they should have this treatise on their shelves.  It's timely and have got great coverage.


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