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Carl Icahn eying Netflix

November 01, 2012|By Dawn C. Chmielewski
  • A U.S. Postal worker holds a stack of Netflix envelopes at the U.S. Post Office sort facility.
A U.S. Postal worker holds a stack of Netflix envelopes at the U.S. Post Office… (Justin Sullivan/Getty…)

Carl Icahn has amassed a nearly 10% stake in Netflix Inc., boosting the sagging stock of the subscription video service but also making some wary that the activist investor will make waves for management.

The billionaire has quietly acquired about 5.5 million shares since early September, buying stock at an average price of $58 a share — well off its peak of $298.73 in July 2011. The opportunistic Icahn said the company’s stock is undervalued, given its influential role in technological changes that are revolutionizing how consumers watch movies and television shows.

“You’ve got a major sea change going on,” Icahn said. “All the habits are changing. You’re going to have distribution changing the whole entertainment business, and they have the greatest platform.”

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Icahn said Netflix’s online video dominance and 27 million streaming subscribers make it an attractive lure for larger companies that are competing with one another to take advantage of new forms of distribution via the Internet and portable devices. However, Icahn said he would not agitate to force a sale and declined to name prospective buyers.

“No way I’m going to do that,” Icahn said. “I believe this thing will sell itself. There’s going to be — if there’s not already — interest in it.”

Icahn was able to capitalize on Netflix’s slumping stock price, which has been sagging amid investor concern over slowing subscriber growth in the U.S. Just last week, the company’s stock dropped 11% in a single day after Netflix lowered its guidance for the growth of its domestic streaming service for the year.

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Wall Street reacted enthusiastically to the news of Icahn's investment, driving the price up to $79.24 on Wednesday, a gain of nearly 14%. The company declined to comment.

Icahn has spent decades roiling American board rooms, taking a stake in such major companies as RJR Nabisco Inc., Viacom International, Time Warner Inc., Yahoo Inc. and Lions Gate Entertainment Corp.

Icahn spent three years battling with the management of film and television studio Lions Gate Entertainment, launching numerous tender offers,  backing board candidates and filing lawsuits in a bid to take control, oust its chief executive, and potentially merge the company with a competitor such as Metro-Goldwyn-Mayer Inc. The activist investor ultimately admitted defeat in August 2011 and sold back his 33% stake. Lions Gate spent nearly $25 million fighting Icahn in court.

By contrast, Icahn’s aggressive move into video game publisher Take-Two Interactive Software Inc. ended quickly and peacefully. A month after he acquired an 11.3% stake in the company best known for the “Grand Theft Auto” series in December 2009, it agreed to give him three of its eight board seats.

In the case of Netflix, Icahn said he has no complaints about Chief Executive Reed Hastings’ management strategy. Hastings, after missteps in 2011, has led Netflix on a global expansion effort.
“I’m not here as a critic of Reed’s management — unlike a lot of what I do,” Icahn said.

Analyst Vasily Karasyov of Susquehanna Financial Group wrote that Netflix is protected against a hostile takeover, so Icahn will have to work with management to increase the stock price. The Netflix board  directors have staggered terms, with one-third of  members up for reelection every year. Shareholders cannot call a special meeting to elect new directors.

“This all means that to force a friendly deal, two years will be required to gain control of the board (nominate one-third of board this year, and another one-third next year),” Karasyov wrote.
Wedbush Securities analyst Michael Pachter said he sees few prospective buyers for Netflix, noting that the company has only a handful of direct competitors: Amazon.com, Hulu and Redbox Instant by Verizon. Of these would-be suitors, only Amazon — which has been investing heavily in its own streaming service — would be a likely candidate, he said.

“Nobody’s buying it, except maybe Amazon,” Pachter said. “I don’t think Amazon needed Carl Icahn to make them aware of Netflix.”

ALSO:

Netflix stock sags after guidance for slower U.S. subscriber growth

Netflix stock plummets on more subscriber growth worries

Netflix's third-quarter earnings tumble amid global expansion

 

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