On September 5, 2019 Merrimack Pharmaceuticals (Nasdaq: MACK) (the "Company" or "Merrimack") reported that the dividend amount for the previously authorized and declared $20 million special cash dividend (the "Special Dividend") announced on July 25, 2019 is $1.496675 per outstanding share of Merrimack common stock (Press release, Merrimack, SEP 5, 2019, View Source [SID1234539318]). The dividend will be paid today, September 5, 2019, as previously announced, to stockholders of record as of the close of business on August 28, 2019.
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The Company is focused on executing its carefully constructed plan to conserve cash and maximize value for shareholders, including distributing all of the more than $500 million in potential milestone payments the Company is eligible to receive, net of any taxes owed. The Special Dividend is consistent with implementing the Company’s strategic plan and, as opportunities arise, Merrimack will continue to look to distribute any excess cash deemed not essential to the Company’s minimal operations required to preserve its ability to capture all remaining potential milestones.
"Consistent with the Board of Directors’ strategic review and Merrimack’s prior communications, we are committed to maximizing the distribution of cash and milestone payments to our shareholders going forward," said Gary Crocker, Chairman of Merrimack’s Board of Directors. "This dividend is part and parcel of that steadfast commitment."
U.S. Federal Tax Treatment of the Special Dividend
Merrimack currently estimates that, for U.S. federal tax purposes, 100% of the Special Dividend (or approximately $1.50 per share) will likely be first treated as a return on capital to stockholders to the extent of their basis in Merrimack common stock, and then as capital gain.
The tax treatment of the Special Dividend will be based on Merrimack’s current and accumulated earnings and profits for Merrimack’s 2019 fiscal year ending December 31, 2019 ("FY19"). The process of determining current and accumulated earnings and profits requires a final determination of Merrimack’s financial results for FY19 and a review of certain other factors. The determination will be based in part on factors that are outside of the control of Merrimack and which cannot be ascertained at this time. Merrimack does not expect the calculation of the portion that will be treated as a taxable dividend for federal tax purposes to be finalized until after the completion of FY19. Accordingly, the portion of the Special Dividend estimated to be a taxable dividend provided in this release is based upon currently available information and is subject to change.
The precise tax impact of the Special Dividend to specific stockholders depends upon the stockholder’s individual tax situation. Stockholders are advised to consult with their personal tax advisors.
No NOL Impairment as of July 24, 2019
The Company engaged a leading global tax advisor to complete an evaluation of ownership changes through July 24, 2019 to refresh a recent study and assess whether utilization of the Company’s net operating loss carryforwards ("NOLs") would be subject to an annual limitation under Section 382 of the Internal Revenue Code. As a result of this analysis, the Company believes it can utilize all of its existing tax net operating loss carryforwards. Any future impairment of the NOLs caused by a transaction that triggers an ownership change or use of the NOLs for other purposes could reduce these returns to shareholders. Merrimack is committed to monitoring the status of the Company’s NOLs and refreshing its Section 382 study as needed on a periodic basis to prevent any future impairments in order to maximize potential future distributions to shareholders.
Merrimack’s Board has consistently been focused on the value of the Company’s NOLs. The NOLs were fully incorporated into the recent strategic review and it was determined by the Company that the best use of the NOLs would be to shield potential tax payments related to the milestones in order to maximize distributions to shareholders.