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Icahn Lashes Back at Netflix’s 'Poison Pill' Adoption

5 Nov, 2012 By: Erik Gruenwedel


The war of words between Netflix and activist shareholder Carl Icahn has begun after the subscription video-on-demand service Nov. 2 enacted a shareholder rights plan (dubbed "poison pill") aimed at thwarting hostile actions by activist investors.

Icahn, who bought a 9.98% stake in Netflix on Halloween, in a Nov. 5 regulatory filing following Netflix’s announcement called the adoption of the poison pill an example of “poor corporate governance.”

Icahn of course has a history of buying stakes in public companies and then turning the screws on management to exact greater ROI either through the sale of the company or executive turnover, among other tactics.

New York-based Icahn called assumption of a poison pill without a shareholder vote “particularly troubling” due to its "remarkably low" and discriminatory 10% threshold. If an individual investor or institutional investor acquires 10% and 20% stakes in Netflix, respectively, the poison pill kicks in whereby additional shares of preferred stock can only be acquired at $350 for 1/1000 of a share, thereby making it cost-prohibative.

“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 [of directors],” Icahn said in the filing. “As one of the company’s largest shareholders we are concerned about the poor corporate governance at Netflix that these and other actions reflect.”

A staggered board is often seen as another layer of protection by management against hostile takeovers since typically only a third of the board comes up for re-election on an annual basis instead of the entire membership.

Michael Pachter, analyst with Wedbush Securities in Los Angeles, said Icahn’s rhetoric may embolden short sellers but won’t go far intimidating Netflix CEO Reed Hastings.

“He has no prayer of forcing change with Hastings as CEO," Pachter said in an email. "Reed has a strategy that I disagree with, but it’s clearly delineated, and it doesn’t involve shopping the company around to the highest bidder. Icahn has a strategy of making money quickly, and that is inconsistent with Reed’s strategy, which will take several years (or forever/never) to play out.”

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