updated 06:21 pm EST, Mon November 5, 2012
Plan would flood the market with shares, raising takeover costs
On Monday, the Netflix board of directors instituted an anti-takeover plan designed to prevent investor and corporate raider Carl Icahn from growing his 10 percent stake in the company. Under the plan, Netflix stock owners will be allowed to acquire more stock if any investor acquires more than 10 percent of the company. The plan is designed to flood the market with shares and reduce the value of the stock making it too expensive for any individual investor to acquire enough stock to take control of the company.
"Adopting a rights plan is a very reasonable thing to do in light of the recent, and stealth, accumulation of stock and options by an activist investor," said a Netflix spokesman.
"If Icahn has a great deal of support from other shareholders, he may press ahead for policy changes or board members of his choosing," said the director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, Charles Elson. "It becomes a game of chicken."
In a securities filing by Icahn today, the investor called the "poison pill" approach to preventing the takeover bid as "an example of poor corporate governance." The "poison pill" plan was adopted unanimously by the company's seven-person board, and will be in effect for three years. Icahn is additionally calling for all seven board members to face re-election every year, as opposed to the staggered system in place now.
Following Icahn's purchase last week, Netflix shares rose 14 percent. He considered the company undervalued, and mentioned that he may seek a buyer, such as Microsoft or Apple, for the company.