Yesterday, the billionaire Carl Icahn announced the latest target for the unique type of value raid he has perfected over the last ten years. Through options and other means, he has taken the equivalent of a 10% stake in Netflix and stated his belief that it's undervalued and should be sold to a big tech company lik MicroSoft, Google, Apple, or Amazon.
The stock surged 14% in response, because whatever happens one can be sure there will be volatility for traders to make (and lose) money off of. And if you mimic Icahn's moves closely enough, you stand to make money right? Well, actually it's not nearly that easy. Icahn's whole plan revolves more around taking advantage of the hype his own moves cause than around what his target's actual prosects are.
Netflix has just the right combination of star power, opinionated stakeholders, recent management missteps, and inherent market conflict for what will happen next. Icahn will push Netflix's board to take short term steps to make itself more attractive. Reed Hastings and crew will try to limit his influence and take steps of their own in response. And both traders and the media will watch every step, having been firmly caught on the hook of potential blockbuster M&A.
If things go right, then at just the right moment Icahn will exit quickly with a quick and painless profit and leave everyone else to worry about whatever messy reality actually results. But it doesn't always work out that way, just ask Blockbuster.
Icahn is still a player in the telecom space of course, with XO still his private garden. I still expect Icahn to eventually sell XO, although the company's recent moves suggest nothing is imminent. And while his interest in Netflix is surely an independent effort, I doubt it has escaped his notice that there could be useful side effects.
Netflix is a big customer of XO's rival Level 3, and one of Icahn's common ploys is to use his influence at one target to benefit another. An example of this strategy was the deal XO once made with Global Crossing after Icahn tried (and failed) to win that 'prize' from Singapore back in ... was it 2004 or 2005? XO offers CDN services via its partnership with Limelight, although not directly. However, Netflix is currently building its own in-house CDN capabilities with infrastructure help from Level 3 and others and I'm sure XO would love a piece of that action.
But back to Netflix as an M&A target, I'm not sure I buy into the potential behind a tie-up with Microsoft, Google, Apple, or Amazon. Netflix as an independent force seems more vital to me than it would as an appendage of any of these, each of which would probably rather see Netflix slowly fail as it readies a nextgen alternative. But if nothing else, Icahn's move will spice up the OTT sector for the whole holiday season.
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