Chesapeake swallows ‘poison pill’ following oil crash

HOUSTON (Bloomberg) --Chesapeake Energy adopted a poison pill to thwart any takeover attempts after the oil-price crash and coronavirus pandemic sent the debt-burdened shale pioneer’s shares tumbling.

The shareholder rights can be exercised if a person or group acquires 4.9% or more of Chesapeake’s outstanding common stock, the company said Thursday in a statement. Under those conditions, holders of the rights can buy common shares at a 50% discount or Chesapeake can exchange each right for one share.

The purpose of the new shareholder rights plan is to protect its tax-related assets known as “net operating loss carryforwards,” the Oklahoma City driller said in the statement. At the end of last year, the company had $7.6 billion worth of so-called carryforwards available to offset future federal taxable income, according the statement.

“Chesapeake’s ability to use these NOLs would be substantially limited if it experienced an ‘ownership change,’” according to the statement, which was released after the close of regular trading in New York. The shares rose 6.3% in after-hours trading.

Chesapeake was already in a precarious position before the Covid-19 outbreak sent crude demand plummeting. At its height more than a decade ago, the producer was a $37.5 billion company led by Aubrey McClendon, an outspoken advocate for the gas industry. But Chesapeake’s success at extracting the fuel from deeply buried rock contributed to a massive gas glut. While the company has pushed to transition into an oil explorer, that move could prove pointless after crude’s historic crash.

Earlier this month, Chesapeake shareholders approved a reverse stock split of one share for as many as 200 shares. The company is one of the most endangered oil producers, with $192 million of bonds coming due in August, out of a total debt load of more than $9 billion.