In response to Carl Icahn’s recent trading activities, the board of directors of Netflix, Inc. has approved a shareholder rights plan (the “Plan”), commonly referred to as a “poison pill.” The Plan allows Netflix shareholders to buy newly issued shares at a discount, diluting the Company’s shares and making a potential takeover more expensive and less attractive for potential buyers.
The Board approved the Plan in response to a takeover threat by Carl Icahn, an activist shareholder who currently owns 9.98% of the Common Shares. Icahn is not attempting to purchase the Company outright; rather, it appears he is attempting to attract other buyers who would buy Netflix at a premium. Instituting a shareholder rights plan is a common defensive tactic taken by boards of directors to thwart corporate takeovers.
Pursuant to the terms of the Plan, the Company has declared a dividend distribution of one right (each a “Right”) for each issued and outstanding common share of the Company. Each Right entitles the holder thereof to purchase one one-thousandth of a series A preferred share. The Plan is “flip-in,” whereby Netflix shareholders can exercise the Rights following the public announcement that a shareholder has acquired beneficial ownership of 10% or more of the Company’s common shares.