NOL Poison Pills: Selectica v. Versata

Posted: 21 Jul 2010 Last revised: 31 Jul 2010

See all articles by Merle Erickson

Merle Erickson

University of Chicago - Booth School of Business

Shane Heitzman

University of Southern California - Marshall School of Business

Date Written: June 23, 2010

Abstract

In late 2008 Selectica’s net operating loss poison pill was triggered by Trilogy/Versata. Litigation ensued in Delaware Court of Chancery over the propriety of the poison pill, which Selectica instituted to protect its $167 million of NOLs from the limitations of Internal Revene Code (I.R.C.) Section 382. Ultimately, the court ruled that Selectica’s board acted reasonably in adopting an NOL poison pill to protect its NOLs. Many other firms have instituted NOL poison pills in the last several years. We discuss NOL poison pills and the Selectica case in this article. We also discuss the treatment of NOLs as a corporate asset, I.R.C. Section 382-related threats to that asset’s value, and the steps firms have taken to protect their NOL assets, including NOL poison pills (also known as Section 382 rights plans). We also provide data regarding other firms that have announced NOL pills in recent years. In doing so, we discuss the valuation of NOLs, GAAP accounting for NOLs, and how the Delaware Court of Chancery considered those issues in reaching its conclusions.

Keywords: Poison Pill, Net Operating Loss, Mergers and Acquisitions, Rights Plan

JEL Classification: K22, G34, M41, G14, H25, K34

Suggested Citation

Erickson, Merle and Heitzman, Shane, NOL Poison Pills: Selectica v. Versata (June 23, 2010). Tax Notes, June 23, 2010. Available at SSRN: https://ssrn.com/abstract=1645979

Merle Erickson (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-0716 (Phone)
773-702-0458 (Fax)

Shane Heitzman

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

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