Peter Kafka

Recent Posts by Peter Kafka

As Netflix Pops Its Poison Pill, Wall Street Struggles to Find Icahn a Buyer

Last week Carl Icahn took a big stake in Netflix, and announced that he wanted someone to buy the company. Here’s the next step: Netflix has adopted a “poison pill” provision, designed to keep Icahn from acquiring any more of the company.

This is straight out of the Icahn-versus-target-company playbook, and not a surprise.

Note, for instance, that the plan, which would double the number of Netflix shares on the market and make it more expensive for Icahn to buy a bigger stake, is triggered if an outsider buys 10 percent of the company. Icahn just bought 9.98 percent of Netflix. (Netflix officials say the plan would also go into effect if Icahn worked in concert with another major shareholder.)

[Also part of the protocol: A note from Icahn says he doesn't like the move. Here it is, via an SEC filing today: "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."]

While the market waits for Icahn’s next move, analysts are scratching their heads as they try to figure out his longer play here. Regardless of the number of shares he ends up owning, he’s already bought himself a seat at the table. So, what does he want?

Traditionally, Icahn buys into a company when he thinks he can shake up management, force the company into a sale, or both.

In this case, Icahn hasn’t been grousing about Reed Hastings and his team, at least so far. Right now, he just wants someone to buy Netflix.

That’s where it gets tough. Ichan has thrown out a bunch of names he thinks could be buyers, like Amazon, Microsoft or Google. But as BTIG’s Rich Greenfield noted last week (registration required), it’s hard to imagine the rationale for any tech company buying Netflix.

If a big tech player wanted their own streaming video service, they could build one, as Amazon is doing. The studios and networks that stock Netflix’s digital shelves are happy to have as many buyers as possible.

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.

Bernstein Research’s Carlos Kirjner throws Apple into the mix, as well. Because, why not? But he can’t think of a reason, either: “We cannot rule any of them out, but, we also have a hard time articulating a compelling value-creating thesis for an acquisition.”

Greenfield tries to help Icahn out by suggesting a different class of buyers: Cable networks and cable providers. His logic is that Netflix is already a digital version of HBO (or TBS, depending on who’s describing it), and that viewing it that way brings out a bunch of possible contenders.

But most of those would-be buyers would have problems with a deal, too. Comcast/NBCU, for instance, would face all sorts of regulatory scrutiny. Time Warner has gone all-in, at least for now, on the pay-cable model, and Netflix would seemingly weaken that stance. And while Disney and Netflix might be a good fit, Disney has just spent $4 billion on the “Star Wars” brand.

Some investors seem to like the idea of something happening, somehow, anyway. Netflix is trading at $78, up more than 10 percent since Icahn’s move.

 


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