Energy XXI Ltd (NASDAQ:EXXI) announced that its Board of Directors (the “Board”) has adopted a Net Operating Loss (“NOL”) Shareholder Rights Agreement (the “Rights Plan”) designed to preserve substantial tax assets of its U.S. subsidiaries. As of June 30, 2015, Energy XXI had U.S. federal tax net operating loss carryforwards of approximately $1.1 billion, which can be utilized in certain circumstances to offset future U.S. taxable income.
The Rights Plan is intended to protect Energy XXI’s tax benefits and to allow all of Energy XXI’s shareholders to realize the long-term value of their investment in the Company. 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. Energy XXI’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 shareholders that own (or are deemed to own) at least five percent or more of Energy XXI’s outstanding common shares 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 Energy XXI’s investor base would limit the Company’s future use of its tax benefits, which would significantly impair the value of the benefits to all shareholders. 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 Board declared a non-taxable dividend of one preferred share purchase right for each outstanding common share ofEnergy XXI. The rights will be exercisable if a person or group acquires 4.9% or more of Energy XXI’s common shares. The rights will also be exercisable if a person or group that already owns 4.9% or more of Energy XXI’s common shares acquires additional shares (other than as a result of a dividend or a stock split). Energy XXI’s existing shareholders that beneficially own in excess of 4.9% of the common shares 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 Energy XXI common shares 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 Energy XXI shareholders. The rights will trade with Energy XXI’s common shares and will expire on February 15, 2017unless the Energy XXI shareholders ratify the Rights Plan prior to such date, in which case the term of the Rights Plan is extended to three years. The Board may terminate the Rights Plan or redeem the rights prior to the time the rights are triggered. (Original Source)
Shares of Energy XXI closed last Friday at $0.47. EXXI has a 1-year high of $5 and a 1-year low of $0.33. The stock’s 50-day moving average is $0.78 and its 200-day moving average is $1.40.
On the ratings front, KeyBanc analyst David Deckelbaum downgraded EXXI to Hold, in a report issued on December 22. According to TipRanks.com, Deckelbaum has a total average return of -41.8%, a 14.3% success rate, and is ranked #3541 out of 3579 analysts.
Energy XXI Ltd is an oil and gas exploration and production company. The Company’s properties are located in the United States Gulf of Mexico waters and the Gulf Coast onshore.
