Cloud Peak Protects Against Hostile Takeover Through SEC Filing

Jan 16, 2019

Cloud Peak Energy's share price over the course of a year
Credit Seeking Alpha

The coal company Cloud Peak Energy filed a stockholder rights plan, more commonly known as a poison pill provision, with the Securities and Exchange Commission this week. It's a way of protecting management from a hostile takeover from a new investor. 

Without concrete language stating that, it mirrors the language used in a similar filing by J.C. Penney in 2013. The company's board began a strategic alternatives review at the end of last year, showing a willingness to sell off major assets, including the company itself.

Clark Williams-Derry, the director of energy finance for the Sightline Institute, a sustainability think-tank, said the provision protects the struggling Cloud Peak from an investor coming in and altering the company's trajectory.

"I could imagine the total value of the company is so low that maybe one of its competitors would step in and say, 'Okay, we're going to buy shares of Cloud Peak and use that to start to try to reduce production,'" Williams-Derry said.

He said it's likely a precautionary measure and not in response to a specific threat, though the company did not respond to clarify. But it is a sign of financial distress, according to Williams-Derry.

"Most companies don't have to worry about this sort of thing. A company with a good business doesn't have to worry about some investor stepping in and trying to mess things up for the company," Williams-Derry said.

Cloud Peak's stock could be kicked off the New York Stock Exchange in the coming months after prolonged share prices under one dollar.