Netflix Shareholder Rights Plan Designed to Stave Off Hostile Takeovers

Move comes after Carl Icahn acquires 10 percent stake in company

Last Updated: November 5, 2012 @ 8:05 AM

Netflix has adopted a "shareholder rights" plan designed to defend the company against takeover attempts by the likes of Carl Icahn, who last week acquired a 10 percent stake in the company after abandoning a prevous bid to take it over.

Shareholder rights plans, also called poison pills, are designed to make takeover attempts discouragingly expensive. They require anyone attempting to take over the company to negotiate share prices with the board rather than with shareholders.

Also read: Netflix Shares Skyrocket as Carl Icahn Buys Minor Stake

"The Rights Plan is intended to protect Netflix and its stockholders from efforts to obtain control of Netflix that the Board of Directors determines are not in the best interests of Netflix and its stockholders, and to enable all stockholders to realize the long-term value of their investment in Netflix," the company said.

The plan will allow the company to offer a new class of preferred stock to reduce the influence of anyone who purchases large amounts of the existing stock.

Under the plan adopted by its board of directors, each stockholder will have one right for each outstanding share of Netflix common stock. A 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. The rights will be exercisable if a person or group acquires 10 percent of Netflix stock or a group of institutional investors acqires 20 percent, and will expire on November 2, 2015 if they haven’t been redeemed.

Also read: Carl Icahn Gives Up on Takeover Bid, Sells His Lionsgate Stake

In August, Icahn abandoned a years-long quest to take over Netflix, the video delivery and streaming site. The billionaire investor and his son, Brett Icahn, agreed to sell up to 44,161,971 shares of Lionsgate common stock, almost all of their shares.

But last week, Icahn's acquisiton signaled he was far from finished with the company.

Netflix stock was lifted by news of Icahn's stake last week. As of 10:45 ET Monday, it was up 1.69 percent to $78.20 per share.