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Is Netflix for Sale?

Analyst says Carl Icahn 'will likely pursue a path to control'
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Carl Icahn's investment firm disclosed a 9.98 percent stake in Netflix to the Securities and Exchange Commission yesterday. Is he going to push the company to sell? That's the rumor today as Barclays analyst Anthony DiClemente issued a report weighing the options for the company. "Though it remains unclear if an interested buyer will emerge over time, we believe Icahn's goal is indeed to sell the company," DiClemente wrote.

Icahn's presence as a major stakeholder in any company is frequently the cause of some concern on the part of that company's owners. In the 1980s, Icahn took over TWA and immediately liquidated its most significant assets. When asked by a congressional inquiry why he had chosen TWA, Icahn responded, "Do you ask Willie Mays why he jumped a certain way for a ball?" Icahn spent much of last year locked in litigation with Lionsgate, another company he took a significant financial interest in and attempted to take over. In Icahn's SEC filing, he disclosed that his various companies now own in aggregate 5,541,066 shares and call options, valued at approximately $168.9 million (including commissions and premiums), all rapidly acquired between Sept. 4 and last week.

Icahn made his intentions clear in the SEC filing. "The reporting persons acquired the shares with the belief that the shares were undervalued due to the issuer’s dominant market position and international growth prospects," Icahn's representatives wrote. "Netflix may hold significant strategic value for a variety of significantly larger companies that are engaging in more direct competition with one another due to the evolution of the Internet, mobile, and traditional industry."

DiClemente was skeptical of any valuation of Netflix in comparison to the cost of creating a similar over-the-top service in-house. "We believe the perceived strategic value of Netflix is not related to growth or profitability," DiClemente wrote. "It’s the value the service has to draw consumers into an ecosystem, similar to Amazon’s Prime Instant Video offering or Apple’s iTunes—loss leading or marginally profitable businesses that promote growth for core platforms like e-commerce and premium hardware sales." Indeed, Apple's iTunes platform has been able to drive hardware sales while Amazon has sold its Kindle Fire tablet below cost and driven traffic to its commercial site.

DiClemente and many others have predicted resistance from Netflix management, particularly CEO Reed Hastings. Were Icahn to push the company to sell, his next step would likely be to secure a seat on the board. Netflix did not immediately return a request for comment.