EarthLink, the Internet Service Provider (ISP) in which Apple has an investment, has approved a share repurchase program and a shareholder rights plan under which the board of directors have authorized an initial repurchase of up to US$25 million of EarthLink’s common stock.
Under the plan, the ISP will issue a dividend of one right for each outstanding common share held by shareholders of record at the close of business on August 5. The shareholder rights plan “helps protect the long-term value of our shareholders’ investments by effectively requiring potential takeover bidders to communicate and negotiate directly with our Board rather than using any coercive or hostile takeover measures,” according to EarthLink CEO Garry Betty. He emphasized that the shareholder rights plan wasn’t adopted in response to any specific attempt to acquire the company “nor is it currently aware of any such efforts.”
The rights issued under the shareholder rights plan generally become exercisable if a third party acquires ownership of 15 percent or more of EarthLink’s common stock or initiates a tender offer for 15 percent or more of EarthLink’s stock. Upon such a triggering event, each right will initially entitle EarthLink shareholders to purchase a fractional share of EarthLink’s Series D Preferred Stock, which shall convert into the right to purchase EarthLink common stock.
In such an event, all rights holders except such acquiring person or group may exercise each right to purchase one share of EarthLink common stock (or shares of the third-party acquirer in certain circumstances) at effectively half of EarthLink’s then-current market price. The rights also are redeemable by EarthLink for $0.01 per right.
The rights plan has no present dilutive effect on EarthLink’s capital structure, nor will it affect reported earnings per share or change the way EarthLink’s shares of common stock are traded, the company says. Neither the adoption of the plan nor the dividend distribution of the rights is taxable to EarthLink or its shareholders.