A Stock Up 30% Since Flash Crash

NEW YORK (TheStreet) -- An innovative tax strategy has helped a little known company defy gravity, gaining more than 30% despite the broader market sell-off since the May 6 "flash crash."

Clarus Corp.(BDE) was a shell company that traded on the pink sheets for years until moving to the Nasdaq on June 11, but its strategy could have implications for other companies with similar tax assets, including CIT Group(CIT), Washington Mutual (WAMUQ.PK), Citigroup(C), Ford Motor Co.(F) AIG(AIG) and Ambac(ABK).

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Clarus was a developer of e-commerce software that went public in 1998, and raised $250 million just as the Nasdaq peaked in 1999. The business began to struggle, and a group of dissident shareholders, led by Warren Kanders, pushed their way onto the board in June 2002 to orchestrate a dramatic shakeup of the company, which was based in Alpharetta, Ga. They slashed expenses to preserve the remaining cash and look for an acquisition to take Clarus in a new direction.

"When you're going 120 miles an hour into a brick wall, you can either hit the wall or put the brakes on, so I chose to put the brakes on and re-direct the corporate energies into trying to find an area which would be in my opinion more responsible to the desires of the shareholders," Kanders told TheStreet in a recent interview.

Clarus then spent some seven years as a shell company, with no profits and $80 million in cash, trolling around for a business it could acquire.

Kanders, a former Morgan Stanley(MS) investment banker who became Clarus's Executive Chairman in December 2002, was well suited to the task. In 1996, he took a controlling stake in a $6 million Florida-based company that made body armor for policemen. He ended up turning Armor Holdings into a major defense contractor that sold itself to BAE Systems(BA.L) in 2007 for $4.5 billion.

One of the big incentives for Clarus to make an acquisition was a $89 million deferred tax asset. The asset was the result of net operating losses from Clarus's software business that could potentially be carried forward to be offset taxes on profits in the future. To find the profits, however, Kanders and Clarus needed a business.