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Reed Hastings' wakeup-call: Carl Icahn isn't beating around the bush on why he's been...
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Thursday, November 1, 2012, 1:24 PM ETReed Hastings' wakeup-call: Carl Icahn isn't beating around the bush on why he's been stockpiling up shares of Netflix (NFLX), revealing in an interview his opinion that there’s going to be acquirers that want to buy it and it's just a matter of corporate governance. That last bit may be a reference to a push by a group of shareholders for board declassification and the right to call special meetings. (Bloomberg TV interview)
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The entire movie distribution ecosystem is in flux and NFLX has an opportunity to become lead dog.....unfortunately, they are fat, dumb and happy simply serving regurgitated episodes of "Family Guy." I challenge them and consumers to answer "why are movies that I really want to see not available on netflix?"
The answer is because Reed offers crappy deals to content providers. My suggestion- quit trying to fit content providers needs into your dysfunctional system:
1) Offer a PPV model that compensates content providers handsomely. $25k flat fee FOREVER blows for unlimited viewing. No Indy film maker would take this deal. Redbox, at least, buys 30 or 40 thousand copies at a fair price....
2) Your database sucks. Search sucks. Reviews are irrelevant/non existent.
Reed Hastings should go. He did a great job disrupting the brick and mortar shops, but NOTHING else. What was that? 8-10 years ago? He has squandered years not taking advantage of the opportunity laid at his feet. Hire some hotshot from Apple who knows how to build a real ecosystem, but is incapable of sitting at the table because seats are already taken. The movie industry is begging for it and whoever captures it will make piles.
What kind of CEO publishes public letters chastising fund managers for shorting their stock (ooops, they were right!)?
asr: CEO's that are twisted on their own BS.
Disclosure: Long NFLX
1) staggered/classified board of directors
2) combined Chair and CEO rather than split offices
3) nflx board ignoring prior shareholder proposals that won a majority of the vote to allow a reasonable % of shares to call a special meeting.
4) The Corporate Library, an independent investment research firm, rated Netflix “High Concern” in Takeover Defenses and “Moderate Concern” in Executive Pay.
5) substantial equity compensation without true performance threshold requirements before vesting.
6) Three of Netlix' 7 directors owned no direct stock or only 256 shares.
Seems like everything you mention would make a management change easier, something that I, as a shareholder, would not feel is in my best interest. I bought precisely because of my belief in the management and the future value that they are creating. If you don't have faith in the managements ability to execute, then short, or buy the competitor. (Btw, Andrew, you failed to disclose your position).
Would you have considered Blockbuster's corporate governance to be adequate back when Carl drove that company into bankruptcy?
Allow me now to add to may list of disenfranchising entrenching bad governance moves - adoption of a poison pill with an inordinately lower 10% threshold for 13D filers vs 13G filers. A shareholder is to be punished or kept on tighter leash for expressing views for change. - ridiculous.
Shareholders don't change managements - board of directors do. Most of the things I mention would require Directors to be more responsive to company's true owners - shareholders.
If CalPERS or CalSTRS or most other pension and retirement funds of size don't have faith in mgmt they don't have the option to sell. They have to perpetually hold all of these stocks as exposure to the market. They have a fiduciary obligation to speak out and take action to improve the performance of their holdings.
Carl didn't drive blockbuster into bankruptcy, a failed business plan and mgmt did. If Netflix goes same route, it certainly isn't Icahn's fault.
We are not long this stock. We are presently short NFLX US 11/9/12 72.5 put and long a greater quantity of NFLX US 11/17/12 75 puts. Furthermore, we may buy or sell any of these securities and others of NFLX at any time.
Thanks for disclosing your position, it's interesting that you are frustrated by their "poor corporate governance" when you are short the stock. Wouldn't it be good for you if Carl can't "improve shareholder value"? I think your position says all that needs to be said.
"high concern means that their are excessive takeover defenses - almost all have academically been proven to hurt not help shareholder value. "
Can you give some examples, or a good reference? From my own investing I've found quite the opposite to be true. Thanks.
I have set forth, below, plenty of examples to educate oneself regarding excessive takeover defenses hurting shareholder value including those that argue changes to such defenses brought about by activists create greater returns than those proposed via advisory shareholder vote.
"Corporate Governance and Acquirer Returns"
http://bit.ly/T3URSX
"The Powerful Anti-takeover Force of Staggered Boards: Theory, Evidence, and Policy"
http://bit.ly/RFP3R2
"Why Firms adopt antitakeover arrangements"
http://hvrd.me/T3UUOv
"The Ethical Implications of Ignoring Shareholder Directives to Remove Antitakeover Provisions"
http://bit.ly/RFP3Al
"Activism and the Shift to Annual Director Elections"
http://tigger.uic.edu~rguo/WP_dboard_2012.pdf
"The Market for Takeover Defenses"
http://bit.ly/T3UUOB
I'm more interested in knowing how he acquired them with a 36.05 strike; exchange traded? Flex options? Employee granted? Who wrote them?
And was the stock purchased first and then the options, or did he add the stock after and why? To reach some preordained threshold before acting?
In it's current state $NFLX will fail, if change needs to be forced, so be it.
Agree that business model at nflx is flawed. corporate governance there is too. the latter contributed to the former.
And exercising calls doesn't require Icahn to "deal with" the short puts at all, as if that complicates matters. The puts make it cheaper to hold either position, until he gets put the stock which then further increases his ownership stake. They were not "sold against" the calls because they don't hedge them.
As to the other questions I wasn't trying to convince you of their relevance, but the answers would provide clues to his endgame none the less.
read the 13d. The puts "expire on the earlier of September 4, 2014 or the date on which the corresponding American-style call option described above in this Item 6 is exercised. The agreements provide that they settle in cash"
Correct-- he did nothing, and had to do nothing, Just as the 13d stated: the puts expired.
The put HOLDER was the one that had to "deal with" them. Either let them expire, or exercise them and write Icahn a check for the amount that NFLX was trading above the put strike. Even a Summer intern could have made that decision correctly.
So my original point stands: the fact that he held some of his stake as options was indeed irrelevant because they did, in fact, become stock at his sole discretion, your objections to the contrary notwithstanding.