Last week I wrote about how Carl Icahn acquired a 10% stake in Netflix as part of a plan to convince the board that they need to seek an alternative strategy or possibly sell themselves to a larger tech company. Today Netflix has announced that they have adopted a shareholder rights plan (known as a poison pill) to protect the company and shareholders from “efforts to obtain control of Netflix that the board of directors determines are not in the best interests of Netflix and its stockholders.”
This poison pill will make it harder and expensive for Mr. Icahn to buy additional Netflix shares. Through the plan, Netflix is issuing one right for every common share. Each right enables a shareholder to buy one one-thousandth of a new preferred share at the exercise price of $350 per right. These rights can be exercised only if an investor buys 10% of the company without the approval of the company’s board. However institutional investors can acquire up to 20%.
Netflix said this in a statement:
In addition, if after a person or group acquires 10 percent (or 20 percent in the case of 13G institutional investors) or more of Netflix?s outstanding common stock, Netflix merges into another company, an acquiring entity merges into Netflix or Netflix sells or transfers more than 50 percent of its assets, cash flow or earning power, then each right will entitle the holder thereof to purchase, for the exercise price, a number of shares of common stock of the person engaging in the transaction having a then-current market value of twice the exercise price. The acquiring person will not be entitled to exercise these rights.
[New York Times]