Netflix, Inc.(NASDAQ:NFLX) has resorted to a shareholder rights plan or poison pill, as it revealed on Monday, to protect itself from a corporate acquisition by Carl C. Icahn. This is the company’s very first method of defense right after the announcement made by Mr. Icahn that he had purchased a 9.98% stake in Netflix.
The company stated that the board of directors has concluded the takeover is not in the best interests of Netflix and its stockholders, which is why they have come up with the plan to safeguard both the organization and of course, its shareholders. Thanks to the poison pill, it will cost Mr. Icahn an astronomical amount to compile more shares.
This is how it works – one right for every common share is being granted. One right allows a shareholder to purchase one-thousandth of a new preferred share at the exercise price of $350 per right. Now, here is the catch: the rights are valid only after an investor manages to gain 10% of the company without any approval from the board of directors. 20% shares can be acquired by institutional investors. The expiration date for the rights plan is on 2nd November, 2015.
Netflix has further elaborated about what happens after 10% or 20% common stock is purchased. After the acquisition, Netflix merges into another organization, an acquiring entity merges into Netflix or Netflix sells or transfers more than 50 percent of its assets, cash flow or earning power, then each right will entitle the holder thereof to purchase, for the exercise price, a number of shares of common stock of the person engaging in the transaction having a then-current market value of twice the exercise price.. Thus the acquiring person is not granted the authority to make use of the rights.