Days after rumors of a Microsoft (NASDAQ:MSFT) buyout bid drove Netflix (NASDAQ:NFLX) shares up 13%, earlier today, the Nasdaq halted trading the stock in the wake of a report that activist investor Carl Icahn has taken a 10% stake in the company. The stock is up another 13% since.
According to Icahn's filing with the Securities and Exchange Commission, his company now owns 5,541,066 shares, representing 9.98% of the business, but that includes call options and puts sold against those options. Icahn is betting big, but he's also hedging.
The Netflix rumor mill has been on overdrive ever since CEO Reed Hastings announced plans to step down from Microsoft's board. As a director, he would have been forced to recuse himself from any discussion about an acquisition of the company that he founded.
Regardless of whether a deal with Microsoft is in the works, Icahn may force talks sooner than anyone would like. From the filing:
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. [Emphasis added.]
The filing also says that Icahn considers Netflix "undervalued" on the basis of its "dominant market position" and "international growth prospects." The implication? He appreciates Hastings' strategy, even if the Street has been slow to approve of Netflix's substantial capital outlays.
Yet, Icahn has a checkered history that includes badgering Yahoo! (NASDAQ:YHOO) executives to sell to Microsoft years ago, a move that looks good in retrospect. His biggest current holdings include Dynegy (NYSE:DYN) and Lions Gate Entertainment (NYSE:LGF.A), S&P Capital IQ reports. With Netflix, he's adding to his stake in top entertainment brands.
Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He had shares of, and a long-term call options position in, Netflix at the time of publication. Check out Tim's web home, portfolio holdings, and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.
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