The board at First Security Group (FSGI) in Chattanooga, Tenn., has adopted a plan that would preserve its deferred tax asset in the case of ownership change.
Companies build deferred tax assets through losses and use the tax asset to offset future tax bills. However, when the prospects of a return to sustained earnings seem unlikely in the near future, auditors force companies to move the tax asset off the balance sheet through a valuation allowance. First Security’s valuation allowance against its deferred tax asset was $37.6 million at the end of the second quarter.
The tax benefit can be put into danger should a shareholder with a 5% or higher stake in the company increases their stake by 50% over a defined period of time.
First Security’s plan would give common shareholders one stock purchase right for each common share owned as of Nov. 12. The rights allow common shareholders to quickly dilute anyone who tries to take a 5% stake in the company.
“As we continue to make progress towards our capital initiatives, minimizing any significant changes in our shareholder base becomes critically important to ensuring the success of our plan,” said Michael Kramer, president and chief executive of the $1.1 billion-asset First Security, in a press release Tuesday.
First Security’s shares soared on the news of the initiative. The stock was trading at $2.90 midday Tuesday, up 15% from Monday’s closing price.
