In-Flight broadband business Gogo is proposing to shareholders that it should adopt a ‘poison pill’ defence as a protection against a hostile take-over bid.
Gogo is willingly selling its Commercial Aviation division to Intelsat for $400 million, but Gogo will retain its lucrative Business Aviation division.
The reason for the strategy is that Gogo has some valuable tax advantages, worth some $580 million in Federal tax plus a further $430 million in State taxes as well as a potential $196 million in interest payments that could be used in certain circumstances to reduce its future tax liabilities.
Gogo is afraid that that these tax breaks could be useful to an incoming buyer who might not be interested in the company itself but would find the taxation benefits valuable.
The ‘poison pilll’ strategy must be approved by shareholders. The plan, as explained by Gogo, is: “The board declared a dividend of one preferred share purchase right for each outstanding share of common stock,” its filings show. “The rights will be exercisable only if a person or group acquires beneficial ownership of 4.9 per cent or more of Gogo’s common stock. Gogo’s existing stockholders who currently beneficially own 4.9 per cent or more of the common stock will be ‘grandfathered’ at their current ownership levels.”
“If the rights become exercisable, all holders of rights, other than the person or group triggering the rights, will be entitled to purchase Gogo common stock at a 50 per cent discount or the company may elect to exchange each right held by such holders for one share of common stock,” Gogo added in its regulatory filing. “Rights held by the person or group triggering the rights will become void and will not be exercisable or exchangeable.”