New York — Sirius XM Radio adopted a stockholder plan on Wednesday that is often used to thwart takeover attempts, although Sirius XM denied this is the purpose of the plan.
The company said its board approved a stockholder rights plan that reduces the voting rights of shareholders who acquire 4.9 percent or more of the company’s common stock.
Specifically, the board assigned one right for each share of common stock. If any person or group acquires 4.9 percent or more of Sirius XM stock without approval of the board, then a significant dilution in the voting and economic ownership of the person would occur.
This type of “poison pill” is often enacted to thwart a hostile takeover attempt; however, Sirius XM CEO Mel Karmazin said the plan was enacted to protect the “substantial tax benefits for the company” resulting from its net losses. The U.S. tax code allows companies to carry forward earlier losses in some instances to offset future earnings and reduce tax liability. These “carry forwards are an important asset of the company, an asset that we believe we should make every effort to protect,” said Karmazin, adding, “The rights plan is intended to enhance stockholder value. It has not been implemented for defensive or anti takeover purposes.”
The rights plan exempts future stock acquisitions by Liberty Media, which took a 40 percent stake in the company in March.
The plan will stay in effect until Aug. 1, 2011, unless the board votes otherwise. Stockholders will vote on the plan by June 30, 2010.