Solutia board adopts shareholder rights plan to preserve tax assets

By Caroline Salls

Pittsburgh, July 27 - Solutia Inc.'s board of directors has adopted a shareholder rights plan designed to preserve the value of its significant federal and state net operating loss carryforwards and other tax assets in connection with any ownership change, according to an 8-K filed with the Securities and Exchange Commission.

"The shareholder rights plan protects the interests of all shareholders from the possibility of losing substantial value through further limitations on the company's ability to utilize its net operating loss carryforwards and tax credit carryforwards under Section 382 of the [Internal Revenue Code]," Solutia chairman, president and chief executive officer Jeffry N. Quinn said in a company news release.

"The rights plan, similar to those adopted by other publicly held companies, is not intended for defensive or anti-takeover purposes, but rather to preserve shareholder value."

The company said an ownership change is generally defined as a more than 50 percentage point increase in stock ownership, during a rolling three-year testing period, by 5% shareholders.

According to the filing, the shareholder rights plan was adopted to reduce the likelihood of an ownership change by deterring the acquisition of stock by persons or groups that would create 5% shareholders.

Under the rights plan, one right will attach to each share of Solutia's common stock, and, if any person or group becomes the owner of 4.99% or more of the outstanding shares of Solutia's common stock without the board's approval, that person or group's economic interest and voting power would be significantly diluted.

The common stock of existing shareholders who currently own 4.99% or more of the outstanding shares will dilute only if they acquire additional shares.

Solutia said each right entitles the holder to purchase a unit consisting of one ten-thousandth of a share of series A participating preferred stock at a purchase price of $45.00 per unit.

The company said the rights are not exercisable until a later date and will expire on July 27, 2012, or earlier if the board determines that the plan is no longer needed to preserve the deferred tax assets, if the board determines that no tax benefits can be carried forward at the beginning of a specified period or if the rights are redeemed or exchanged by the board.

Solutia said its estimated federal NOLs were $1.4 billion as of Dec. 31, 2008.

Solutia is a St. Louis-based performance materials and specialty chemicals company that emerged from bankruptcy in February 2008.

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