Published November 01, 2012
Billionaire investor Carl Icahn bought 10 percent of Netflix Inc , presaging another bruising corporate battle and raising the possibility that the pioneering movie and TV-streaming company would get acquired.
Netflix shares rose 14 percent to close at $79.24 on Nasdaq after Icahn disclosed in a regulatory filing he purchased shares and call options in the company that boasts more than 30 million subscribers globally.
Icahn, known for shaking up management, said in an interview he felt Netflix was undervalued and would make "a great acquisition for a number of companies."
"I think there would be a bidding war if it was ever up for sale," Icahn said.
Netflix has been the subject of periodic acquisition speculation, with potential names tossed around from Microsoft Corp to Amazon.com Inc . Last Friday, shares jumped 13 percent after rumors of a potential Microsoft purchase, which the company and Netflix denied.
Netflix was a Wall Street darling with red-hot growth that boosted shares as high as $304 in July 2011. Many investors soured on the company after it imposed an unpopular price rise, faced new competition and increased spending on content and an international expansion.
Icahn said Netflix was in a "great position" to take advantage of consumers' shift to watching more video content through streaming to televisions and mobile devices.
"You're going to see a major change," he said. "I'm a movie buff, and I haven't been to the movies in six months. I watch everything on TV."
The dealmaker said he hoped to speak with Netflix Chief Executive Reed Hastings on Wednesday evening.
"I don't know that I have a lot of strategies as of yet" for ways to improve the company, Icahn said.
Icahn spent about $168.9 million to acquire 5.5 million Netflix shares and call options, according to his regulatory filing.
Less than 1 percent of his 10 percent stake was acquired through share purchases. The bulk of the investment was made in the form of call options set to expire in September 2014.
A Netflix spokesman had no comment on Icahn's share purchase.
Frank Biondi, an investor who joined with Icahn to lead a 2006 proxy fight for control of Time Warner Inc , said Icahn may be aiming to stir interest among other buyers.
"No one knows what Carl is up to," Biondi said. "Maybe he is putting it into play."
Icahn was once the largest shareholder in Blockbuster video, the movie rental chain that was forced into bankruptcy as customers shifted to renting movies from Netflix. Icahn gave up his board seat in 2010, the year Blockbuster filed for bankruptcy.
Another recent Icahn foray into the entertainment arena ended with him cashing out of film studio Lions Gate Entertainment just months before it released its blockbuster "Hunger Games" movie.
After a years-long battle for control, Icahn sold his 44 million shares for $7 apiece. The price was about equal to Icahn's cost of acquiring the shares, Lions Gate said when the transaction was announced in August 2011.
Icahn's history of takeover battles suggests he may try to take control of Netflix, Wedbush Securities analyst Michael Pachter said.
"This drama is going to play out for months because he's not going to sell his stake tomorrow," Pachter said.
Pachter and other Wall Street analysts questioned Icahn's assertion that another company will want to buy Netflix.
"Amazon is the only one that makes strategic sense, but they've already committed to building their own business," Pachter said. "I would challenge the Icahn premise that there's a variety of companies who this makes strategic sense for."
Raymond James analyst Aaron Kessler said he agreed with Icahn's stance that Netflix could be a strategic target for another company, but the "question always is, what's the valuation someone is willing to pay for them?"
Netflix is trying to build its U.S. customer base and use profits there to enter new markets overseas ahead of rivals. The international expansion is hitting the bottom line of the company, which projects a fourth-quarter loss due to start-up costs for its move into four Nordic countries.
At the same time, Netflix faces growing competition from online video players such as Amazon.com that are beefing up their movie and TV offerings, as well as from on-demand options from cable and satellite providers.
Earlier this month, Netflix cut its year-end forecast for new subscribers by 2 million, leading many Wall Street analysts to lower their share-price targets. Hastings said Netflix miscalculated how quickly it would grow in the young and fast-changing Internet TV market.
(Additional reporting by Liana B. Baker in New York and Ronald Grover in Los Angeles; Editing by Gary Hill, M.D. Golan and Ryan Woo)