Dolan Co. Adopts Plan To Limit Stock Purchases
The Dolan Company announced Wednesday that it has adopted a “shareholder rights plan,” which is meant to limit the amount of the company’s stock a shareholder or potential shareholder might purchase.
The rights agreement is intended to deter individuals from acquiring more than 5 percent of the company’s stock, and also to prevent those that already own more than 5 percent from acquiring additional shares.
Minneapolis-based Dolan is a provider of professional services and business information to the legal, financial, and real estate industries. According to the company, the rights plan is meant to protect its net operating losses in order to preserve the value they can bring in future deferred tax benefits.
Companies may “carry forward” their net operating losses in certain circumstances in order to offset current or future taxable profits—up to 20 years in the future—according to the IRS. For example, if a company lost $200,000 in 2011 but earned $850,000 in 2014, it can “carry forward” its losses so that it will only be liable for taxes on $200,000 of its profits in 2014.
Dolan estimates its net operating losses to be at least $120 million, due primarily, it says, to the “NDeX divestiture transactions” it completed this year.
The company’s National Default Exchange (NDeX) business unit performed poorly in its most recent quarter, as the state experienced a reduction in foreclosure rates. The NDeX unit deals with a case management software system that assists clients in processing foreclosures, bankruptcies, evictions, and litigation case files for residential mortgage defaults.
Dolan sold two of its NDeX businesses in August for $17.5 million to law firms that were clients of the businesses.
The shareholder rights agreement comes into play because Dolan’s right to “carry forward” its losses can be limited—or even lost altogether—if the carry over takes place in any single year that follows the company undergoing an “ownership change.”
An ownership change occurs when a company shareholder, who owns at least 5 percent stock in the company, increases his or her holdings by 50 percentage points more than the lowest percentage of shares he or she has owned in the last three years.
In order to prevent an ownership change, the rights agreement will allow shareholders the right to buy shares at a discount price if one shareholder acquires more than 5 percent of the company’s stock. That way, the discounted purchases will dilute the holdings of the individual or group that acquired more than 5 percent, thereby preventing an ownership change.
Dolan is coming off a recent fiscal quarter in which it reported a net loss in cash flow from operating activities of $140 million, compared with a $5.5 million gain the year before.
Due to that loss, Dolan may not be able to pay off its total outstanding debt of $142.3 million. “If the maturity of the indebtedness is accelerated,” the company said in a recent regulatory filing, “sufficient cash resources to satisfy the debt obligations may not be available and the company may not be able to continue operations as planned.”
Revenue for its latest quarter totaled $47.5 million, up 13.6 percent from $41.8 million in the second quarter of 2012. Second-quarter revenue fell short of analysts’ projections of $53.3 million.
Dolan’s stock has been incredibly rocky over the course of the last year. It is down 37 percent since the beginning of the year but up nearly 50 percent over the last three months.
Following the company’s shareholder rights plan announcement, shares of Dolan’s stock climbed 6.4 percent, to close at $2.48 Wednesday, although they were trading down about 5.24 percent at $2.35 early afternoon Thursday.