After Icahn takes Netflix stake, streaming video service looks to fend off unwanted suitors

Shares of Netflix surged last week after billionaire investor Carl Icahn purchased 9.98 percent of the streaming media service, suggesting that it could be a possible buyout candidate by the likes of Amazon.com or Microsoft.

But Netflix isn’t in the mood to sell to just anyone. Today, the company, with 30 million members, announced a new shareholder rights program that’s designed to prevent buyers (like Icahn) from taking over the company. Known in M&A lingo as a “poison pill,” the new rights plan will only be adopted if a person or group acquires a more than 10 percent stake in a transaction not approved by the board.

With a current market value of $4.2 billion, Netflix wouldn’t come cheap. And some have already tossed cold water on the theory that Netflix would make a good acquisition for Amazon, which is building its own streaming video service. (The fact that Netflix CEO Reed Hastings called Amazon’s video offering a “confusing mess” back in September probably doesn’t help win any friends).

Now, Microsoft is a more interesting potential suitor, in part because of Hastings close ties to the software giant. In fact, Hastings just announced last month that he plans to step down from the Microsoft board, a director level position he’s held since March 2007. (Could Hastings’ departure be tied to a possible deal between Netflix and Microsoft?)

“There’s going to be consolidation in this industry, and there are, I would believe, a lot of interested buyers that have a lot more capital than Netflix,” Icahn told The Wall Street Journal. While the takeover specialist didn’t offer any specifics, it’s widely believed that companies such as Amazon, Microsoft and Apple were on this mind. It’s also possible that cable companies could kick the tires on Netflix.

Peter Kafka at All Things D writes that it is hard to “imagine the rationale for any tech company buying Netflix,” since the streaming video service is currently available on nearly every gadget and device. He writes:

And if they did want to buy instead of building, the tech guys would have to decide if they want to make it proprietary. If they did, they would cut out a core part of the Netflix strategy, because the service is currently available to just about every box and device on the market. If they didn’t, they’d be spending money to help boost their competitors’ platforms.

  • http://www.christopherbudd.com Christopher Budd

    I think this is the end for NetFlix. Ichan is a classic corporate raider in the Gordon Gekko (http://en.wikipedia.org/wiki/Gordon_Gekko) mold (I actually wondered if Gordon was based on Carl given Carl’s involvement in TWA back in the 80′s and the airlines piece in Wall Street….but I date myself).

    Any time he gets involved the company ends up so focused on being an investment vehicle and/or broken up and sold for parts that the actual business gets lost in the shuffle.

    And since we’re in the Wayback machine talking about Wall Street, here’s the classic “Greed is Good” speech as a bonus: http://www.youtube.com/watch?v=PF_iorX_MAw

    • guest

      He was in and out of Yahoo, they’re still around. And his involvement was of some benefit. It certainly got them to light a fire under realizing value from some otherwise dormant investments. Not sure what you have against “corporate raiders”? For every disaster there, I can point to a dozen companies that have failed their shareholders because they didn’t feel any pressure to do otherwise.

      • http://www.christopherbudd.com Christopher Budd

        Sure, I’d argue that Yahoo is barely around to begin with but also he never managed to get the level of control he wants in companies either.

        There are plenty of companies that can use a good kick, no doubt. But Ichan just doesn’t have a record of doing anything that’s more positive than carving up a company and selling it off.

        • guest

          Yahoo and its investors would disagree. And raiders rarely want to control companies. Instead, they want to unlock shareholder value, usually in a relatively short period of time and over the objections of demonstrably incompetent management teams. His record is better than most on that dimension, though not perfect. And sometimes carving up a company and selling off portions is far preferable to leaving them in the hands of their incompetent management. For a long time Yahoo was an example of that. It may still be. And then there’s one of the best examples of all, your former employer: MS. Ballmer has been destroying shareholder value for THIRTEEN years. The stock has performed worse than even the S&P in nine of those years. He’s lost two markets the company pioneered: smartphones and tablets. And Google will soon be the #1 purveyor of operating systems worldwide. Would all of that have transpired if Icahn, or someone else, had taken a serious run at the company mid last decade?

  • http://twitter.com/robofhood rob hammond

    anytime the “animal spirits” that form stock prices are hindered shareholders lose.

    • guest

      Agreed. Poison pills are the preferred choice of management teams who know they suck and just want to protect their own necks.