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Netflix: Carl Icahn, go away

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Staff writer ▼ | November 5, 2012
The battle for the spot No1 in the field of video streaming is fierce and Netflix is an obvious target for the attack. To be better prepared against possible hostile takeover, the company adopted a "stockholder rights plan". In other words: Carl Icahn, go away.
NetflixThe battle for the spot No1 in the field of video streaming is fierce and Netflix is an obvious target for the attack. To be better prepared against possible hostile takeover, the company adopted a "stockholder rights plan". In other words: Carl Icahn, go away.


Investor Carl Icahn bought a 9.8% stake in Netflix last week and that triggered red alert in the company. It depends on the core business - while it's competitors may use other means to finance their streaming business divisions - and it must react fast to any threat. And that's what the company did.

Netflix announced that it has adopted a "stockholder rights plan" to prevent a hostile takeover. The plan among the managers known as a "poison pill" will be triggered if any shareholder reach 10% of company's shares or, to be more precise, if an investor tries to buy a significant part of the company without Netflix's board approval. When that happened, the company will flood the market with new shares and that will make a takeover very expensive.

The company said: "Pursuant to the Plan, Netflix is issuing one Right for each current share of common stock outstanding at the close of business on November 2, 2012. Initially, these rights will not be exercisable and will trade with the shares of Netflix's common stock. If the Rights become exercisable, each Right will entitle stockholders to buy one one-thousandth of a share of a new series of participating preferred stock at an exercise price of $350 per Right. The Rights will be exercisable only if a person or group acquires 10% (or 20% in the case of institutional investors filing on Schedule 13G, as described in the Rights Plan) or more of Netflix’s common stock in a transaction not approved by Netflix's Board of Directors."

If a person or group acquires 10% (or 20% in the case of 13G institutional investors) or more of Netflix’s outstanding common stock, each Right will entitle its holder to purchase, at the Right’s exercise price, a number of shares of Netflix’s common stock having a then-current market value of twice the exercise price.

In addition, if after a person or group acquires 10% (or 20% in the case of 13G institutional investors) or more of Netflix’s outstanding common stock, Netflix merges into another company, an acquiring entity merges into Netflix or Netflix sells or transfers more than 50% of its assets, cash flow or earning power, then each Right will entitle the holder thereof to-2-purchase, for the exercise price, a number of shares of common stock of the person engaging in the transaction having a then-current market value of twice the exercise price. The acquiring person will not be entitled to exercise these Rights.

Carl IcahnOf course, Carl Icahn reacted in the SEC filing: "This morning the Issuer announced its adoption of a poison pill. The Reporting Persons believe any poison pill without a shareholder vote is an example of poor corporate governance, and find the pill Netflix just adopted is particularly troubling due to its remarkably low and discriminatory 10% threshold. We also note that Netflix is one of the few companies that continues to ignore the fact that the shareholders have strongly expressed their wishes through a majority vote to de-stagger its board. As one of the company’s largest shareholders we are concerned about the poor corporate governance at Netflix that these and other actions reflect."

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