The battle between Netflix, Inc. (NASDAQ:NFLX) and Carl Icahn is escalating after the shareholders of the company led by its CEO, Reed Hastings, immediately developed an anti take over plan called a “poison pill plan” against the activist investor.
According to a report from Wall Street Journal, Icahn is ready to fight against the shareholders of Netflix, if necessary. He said, “If they want to go to war, then we’ll go to war.”
In a rare interview with Harvard Business School that was published online earlier this month, (it has since been taken down) value investor Seth Klarman spoke at length about his investment process, philosophy and the changes value investors have had to overcome during the past decade. Klarman’s hedge fund, the Boston-based Baupost has one of Read More
Carl Icahn recently acquired a nearly 10 percent stake in Netflix, Inc. (NASDAQ:NFLX). As an activist investor, he is famous for pushing changes in the companies where he has investments. According to the report from the Wall Street Journal, Icahn made a brief call to Hastings on Halloween and told him that Netflix is about to be put in play. The two executives agreed to meet to discuss the future of the video-streaming company in New York.
After two days, Hastings encouraged six members of the board of Netflix, Inc. (NASDAQ:NFLX) to implement a “poison pill plan” to prevent Icahn from purchasing additional stocks to gain control of the company. A spokesperson from Netflix previously stated, “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.” Under the poison pill plan, the shareholders of Netflix are allowed to buy more stocks in the company if an investor increases a stake in the company by more than 10 percent. This means, the stock market will be flooded with Netflix stock, thus reducing the value of the company.
Netflix sought the advice of investment banks Goldman Sachs Group, Inc. (NYSE:GS) and Morgan Stanley (NYSE:MS), law firm Wilson Sonsini Goodrich & Rosati, as well as public relations firm, Sard Verbinnen & Co. regarding its impending fight against Carl Icahn.
Icahn described the action of the board of directors of the company as an example of poor corporate governance. He said, “I guess they decided to go to battle.” The activist investor wants to encourage the shareholders of Netflix to support his proposal to sell the company to an entity with the capability to accelerate and maximize its distribution, such as Google Inc (NASDAQ:GOOG) or Microsoft Corporation (NASDAQ:MSFT)
Carl Icahn said, “There is a very good argument that, at the right premium, somebody should buy Netflix. They’ve got a great platform. That is also why it is such a great acquisition candidate for someone.” In addition, he emphasized that most of the shareholders want see the company sold at a big premium.
On the other hand, Whitney Tilson of T2 Partners hedge fund said that he would be “very disappointed” if the management of Netflix agreed to sell the company at $100 per share. Tilson said, “It would have to be a much higher price for me to be happy about giving up this stock.”
Netflix, Inc. (NASDAQ:NFLX) stock is trading at $80.48 per share on Tuesday afternoon. The company has approximately a $4.2 billion market capitalization.
Hastings recently stated that the company is focused on its daily operations, and not with Icahn’s proposal. “Next steps: grow membership, increase content, repeat,” said Hastings.
Meanwhile, Citigroup analysts Neil Doshi and Rohit Kolkarni met yesterday with Reed Hasting during an event called “Rally in the Valley.” During the meeting, Hastings discussed with the analysts that Netflix, Inc. (NASDAQ:NFLX) is focused on reducing cost per hour of viewership as part of its content acquisition strategy. Hasting also reiterated that the total addressable market for On Demand net video service remains quite large, but consumer adoption is predicated on several external factors, such as broadband and Internet connected device penetration. Hasting also emphasized the large growth opportunity of Netflix in international markets, but every market has different competitive or external factor.
The analysts maintained their “buy” rating for Netflix, Inc. (NASDAQ:NFLX), and projected that the company would reach 28 million unique subscribers in the United States and 5 million international subscribers by the end of 2012.