Icahn Swoops In On Netflix

October 31st, 2012 by · 11 Comments

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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Categories: Mergers and Acquisitions · Video

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11 Comments So Far


  • Anonymous says:

    Rob – XO does offer CDN through it Concenrtic brand. They partnered with LimeLight for this service.

  • Anonymous says:

    best way to start your day – “mr icahn on line 1, sir”

    • how funny would it be says:

      Here are a few things that would come from that phone call at the start of your day.

      1. Hello .. this is Carl. You will eliminate all stock for your employees.
      2. You will remove all your fat and lavish healthcare perks and move your entire teams to a CDHP with the burden being placed on the employee and not the company.
      3. You will self insure yourself and move away from expensive re-insurance policices.
      4. You will eliminate executive contracts. No new executive contracts. period.
      5. You will require all of your employes – current and new – to sign papers that prevent defaming of icahn, his family, direct and indirect businesses.
      6. You will replace board members with those i choose.
      7. You will lose all corporate sales trips typically used to recognize the top performers. if you do need to go someplace and reward folks there’s a nice deal on one of his tropicana hotels in atlantic city and or florida.
      8. You will hire totally inept people to run your IT teams, legal teams and operations teams – pay them nothing, and get away with it.
      9. You will come to my office and wait until icahn is good and ready to see you – sometimes hours on end – before permits you to have the priviledge to speak to him,
      10. while you are there he will berate, castagate and then fire you.

      have a nice day. good luck reed.

  • b ebbers says:

    Thats like going to the office and see the 60 Minutes truck parked in the lot. Its going to be one of those days.

  • Carlk says:

    I continue to maintain a very small stake in addition to a trading bandit account that was established on one investment theme relative to Netflix. That theme remains blockbuster “Original Content.” If they can and will produce “must have” content on par with or below the costs of purchasing it via the incumbent media titans like they do; they will become a smash hit must own security.

    The management team is very savvy while garnering my respect, and not unlike ICON, I thought Billy/Ballmer would wrest control of this by including it in their portal to living rooms everywhere. I used to get a kick out of Reed sparring with pretty boy Whitney Tilson, when Reed told Whitney to get off the short and onto the long, with Pretty Boy complying almost overnight.

    Did I say trading bandits? Yup, Rob is correct about ICON, not to mention Pretty Boy Whitney Tilson! They will flip the switch on and off in a NY high frequency trading minute, just like WRONG STREET where ICON’s roots are.

    Some of my sage like friends tell me that Billy/Ballmer will not bite, so there continues to be great RISK in Netflix shares. I just keep wondering if Billy/Ballmer told Reed to walk from their board recently, but somehow I don’t believe that was the case. I absolutely believe MSFT should buy em!

    What did he just say? Nobody here understands it! Check with Enron because he knows everything! LOL, IMO

  • Parsad says:

    What did CarlK just say ? Can anyone understand his gobble goup? It sounds like turkey day is here already via crazy CarlK.

    • Carlk owns a speculative bit of Netflix. He thinks original content is their way to success. He also thinks MicroSoft might and should buy it, but it’s a risky thing to bet on. But he also thinks Icahn can’t be trusted.

      Carlk, how am I doing? 🙂

      • Anon says:

        4 1/2 lines to say clearly what took 22 to say confusingly before. If only we could get the Cliff Notes version of CarlK every time.

  • Carlk says:

    Robert, you did great, but that other pseudo couldn’t possibly be my trusted partner over at “The Corner of Berkshire and Fairfax,” could it? LOL! “Cheers!” to “Reed,” etal for catching on, or should I say, incorporating a “poison pill” to protect from getting an STD from that dubious practitioner, CARL ICON! IMO

    http://www.nasdaq.com/article/netflix-board-approves-stockholder-rights-plan—quick-facts-20121105-00758#.UJfOjW_A8sc

  • Grant Lewis says:

    So did they just dilute his position by forcing him to having to purchase more stock which they would/could presumably prevent from happening?

    “As per the Plan, the company is issuing one Right for each current share of common stock outstanding at the close of business on November 2, 2012. Initially, these rights will not be exercisable and will trade with the shares of Netflix’s common stock. If the Rights become exercisable, each Right will entitle stockholders to buy one one-thousandth of a share of a new series of participating preferred stock at an exercise price of $350 per Right.”

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