Activist investor Carl Icahn recently bought 5.5 million shares of Netflix, Inc. (NASDAQ:NFLX), gaining an almost 10 percent stake in the company. Icahn’s move prompted the stock value of the company to increase by more than 20 percent to $84.12 per share on October 31, but ended the day with almost a 14 percent gain, at $79.17 per share.
Icahn is expected to push changes in the company. A report from Wall Street Journal cited that Icahn plans to find buyers for Netflix, Inc. (NASDAQ:NFLX).
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The shareholders of Netflix, Inc. (NASDAQ:NFLX), led by its CEO, Reed Hastings, who owns 4.5 percent stake in the company, immediately developed an anti take over plan, called the “poison-pill plan”, against Icahn. Under the plan, the shareholders of the company are allowed to acquire more stocks if an investor expands his stake in the company by more than 10 percent. The poison-pill plan enables Netflix to flood the market with additional stocks, which could reduce the stock value of the company.
According to the spokesperson of Netflix, the board of directors of the company is continuously reviewing its governance structure, and their goal is to maximize the long-term value of shareholders. The spokesperson said, “Adopting a rights plan is a very reasonable thing to do in light of the recent, and stealthy, accumulation of stock and options by an activist investor.”
Icahn described the poison pill plan of the Netflix, Inc. (NASDAQ:NFLX) as an example of poor corporate governance, citing the fact that the management team of the company did not seek the vote of the shareholders. In addition, Icahn asked Netflix to implement a yearly election for its entire board of directors, instead of its current system, wherein certain members of the board stand for reelection during a scheduled year. The board of directors unanimously approved the poison pill plan on November 2, and it will be implemented for three years.
Icahn doesn’t give up immediately, and he is known for launching a proxy fight against the management of the companies whenever he wants to push for changes. He said, “We have something to say and I would say this is going to play itself out pretty well.”
Netflix is not the only company that thwarted Icahn’s take over plan. Last month, the board of directors of Oshkosh Corporation (NYSE:OSK) implemented their own “poison pill plan” against the activist investor. The board unanimously rejected Icahn’s unsolicited offer to acquire any, or all of the outstanding common shares of the company. Richard M. Donnelly, chairman of Oshkosh described Icahn’s offers as “inadequate, highly-conditional, and opportunistic.”
Michael Pachter, an analyst at Wedbush Securities, commented that Icahn made a mistake on Netflix. According to him, Icahn is “completely wrong” in his belief that Netflix, Inc. (NASDAQ:NFLX) is ripe for takeover. He believes that none of the potential buyers listed by Icahn, including Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Verizon Communications Inc. (NYSE:VZ), and the large media companies, are willing to acquire Netflix for billions of dollars, because they have the ability to build their own video streaming service. Pachter pointed out that the companies have no reason to purchase Netflix.