Carl Icahn Predictably Calls Netflix's Poison Pill 'Poor Governance'

Rebecca Greenfield
Carl Icahn Predictably Calls Netflix's Poison Pill 'Poor Governance'

The latest in the Carl Icahn-versus-Netflix saga has Icahn calling Netflix's poison pill measure—a plan that allows Netflix to flood the market with shares if someone attempts to buy more than 10 percent of the company without the board's approval—"poor governance" in an SEC filing, which is exactly what we would expect Icahn to do. In the past, Icahn has made a big investment in companies, which he did with Netflix last week, and then used that power to cause a board shakeup before making a lot of money for himself (and investors) via a sale, as CNET's Greg Sandoval explains it.

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In this current situation, it's pretty clear Icahn wants to sell Netflix. Netflix doesn't want that, so it adopted this "poison pill" measure, which will make it hard for Icahn to control more of the company than he already does. Right now he has just under 10 percent of the company. (That move was also predictable, as DealBook's Steven Davidoff noted. Oshkosh, for example, made the same move last month.) And now, following suit, Icahn has started his board smear campaign, not only knocking the poison pill move but "other actions." The SEC filing reads: "As one of the company's largest shareholders we are concerned about the poor corporate governance at Netflix that these and other actions reflect." The question now is: what happens next? Here's how it could go:

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1. Icahn will try to find a buyer for Netflix. "Right now, he just wants someone to buy Netflix," notes AllThingsD's Peter Kafka. "Icahn has thrown out a bunch of names he thinks could be buyers, like Amazon, Microsoft or Google." Davidoff thinks he wants to do a quick sell, in order to avoid any more of this infighting. 

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2. The board will claim the company's stock is too low to sell. The board will attempt to convince shareholders that sale is a bad idea. "Because Netflix is a growth story, its board is likely to say the company’s share price is unduly low to justify a sale. The shares were trading at about $70 before Mr. Icahn’s announcement, less than a quarter of the $300-a-share high in 2011," explains Davidoff.

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3. Icahn will continue with his board shake-up until he gets what he wants. "If Icahn has a great deal of support from other shareholders, he may press ahead for policy changes or board members of his choosing," Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware told The Wall Street Journal's Greg Bensinger. "It becomes a game of chicken." Davidoff suggests a proxy contest or a with-hold-the-vote campaign. 

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That's if all goes via the Icahn plan. There is a possibility that Icahn won't be able to find anyone who wants to buy Netflix, which is what Kafka thinks might happen. The Netflix board's poison pill will be in effect for three years and could dissuade Icahn from pushing his plans. But the "unrelenting activist shareholder," as Bensinger calls him, doesn't sound like the type to back down.