With Icahn move, Netflix is now officially in play

The streaming-video company's shares jump 15 percent on news that Carl Icahn has taken a significant stake in Netflix. The financier and former corporate raider once was a major shareholder in Blockbuster.

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3 min read
Carl Icahn
Shares of Netflix jumped sharply after an SEC filing disclosed that financier and former corporate raider Carl Icahn has taken a nearly ten percent stake in the streaming-video and DVD rental company.

The filing notes that Icahn Capital LP, an investment firm controlled by Icahn, and associated entities bought 5.54 million shares of stock in the company, plus call options, for $168.9 million. In remarks filed with the announcement, the group suggests Netflix is undervalued.

The disclosure of Icahn's investment comes just days after rumors that Microsoft might also be sniffing around Netflix. Unconfirmed rumors on Friday suggested that the Redmond, Wash., software giant might be prepared to offer $90 a share in an acquisition bid. Those reports appeared to fuel a 13 percent rise in Netflix shares that day.

Here's some of the key information from 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. The Reporting Persons believe 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. The Reporting Persons are considering ways for the Issuer to maximize shareholder value but have reached no conclusion. The Reporting Persons may in the future seek to have discussions with the Issuer.

Shares of Netflix were trading at $80 this afternoon, up $10 or 15 percent. A Netflix spokesman declined to comment.

So, those rumors about Microsoft having an interest in acquiring Netflix seem to have a little more relevance thanks to that line from the filing about how Icahn believes "Netflix may hold significant strategic value...for larger companies."

Now, throw in the fact that Netflix CEO Reed Hastings resigned recently from Microsoft's board and you have a lot of smoke. Hastings has said that he left Microsoft's board to devote more time to Netflix, but he's still on the boards of several other companies, including Facebook. Why would he give up Microsoft and not another seat on some other company?

Icahn is no stranger to the online video rental market or Netflix. He was a major stockholder and board member of Blockbuster, the country's once dominant video-rental chain store. In this capacity, he played an important role in helping to guide Blockbuster during it's doomed competition against Netflix.

Blockbuster's brick-and-mortar stores were done in by Netflix's DVD home-delivery business and it filed for bankruptcy protection in 2010. Icahn's history as an investor is full of high-profile proxy fights and tussles with management. In recent years, he has fashioned himself as an investor activist.

At Blockuster, Icahn warred with John Antioco, that company's former CEO, until Antioco resigned amid an effort to build up Blockbuster's own Web video delivery business that was making gains against Netflix, according to the book "Netflixed," by author Gina Keating.

Icahn supported the hiring of Jim Keyes to replace Antioco and he promptly threw the company's resources back into the stores, a strategy that likely hastened the company's demise. If Icahn isn't trying to make a quick buck on a Netflix sale, then it's likely he's going to want to influence management decisions at the company.

In addition to Microsoft, rumors over the years about potential Netflix acquirers have included Amazon, Yahoo and Apple.