by James Brumley | November 1, 2012 1:37 pm
Some restless shareholders are cheering the news, while others are concerned that now’s the exact wrong time to undergo an overhaul. Both camps can certainly agree on one thing, though: Billionaire investor Carl Icahn’s new interest in Netflix (NASDAQ:NFLX[1]) is going to keep things interesting through Sept. 4, 2014.
Why that date? Because that’s when Icahn’s options to buy nearly 10% of the entire Netflix corporation expire.
Of course, it’s all academic at this point. The next question shareholders and onlookers need to ask is “Why does Carl Icahn really want control of Netflix?” Said more bluntly, what does Icahn think he can do for Netflix that wasn’t going to happen anyway?
Or, to ask the question in a really nasty way … does Carl Icahn really even know what he’s getting himself into?
Based on his history, Carl Icahn most likely is aiming to take an active role in the day-to-day operations of Netflix to squeeze more value out of it. That’s what transpired when he started to accumulate shares of “loose cannon” natural gas outfit Chesapeake Energy (NYSE:CHK[2]) in May of this year, anyway.
That’s also how things unfolded when he started to accumulate shares of Motorola back in 2008. His goal from the beginning was to split Motorola into two pieces and sell off the mobile phone division, which it finally did — to Google (NASDAQ:GOOG[3]) — earlier in the year.
Not everything Mr. Icahn touches turns to gold[4], however … a reality that is often overlooked. Remember, this is the same Carl Icahn that joined the Yahoo! (NASDAQ:YHOO[5]) board of directors in early 2008 with the goal of either getting the company sold to Microsoft (NASDAQ:MSFT[6]), or at least inspiring some change for the better. He had done neither by the time he resigned as a board member a year-and-a-half later; YHOO shares even lost value during that time.
As for why Icahn might not get the traction he’s specifically expecting with Netflix, however, there are trio of burdens weighing down NFLX that are completely out of any CEO or board member’s control.
None of this is to say Carl Icahn can’t get more value from Netflix than is currently being realized. But he can’t do it by squeezing blood from a turnip. He’s going to have to do it by lowering costs and increasing revenue despite these three hurdles.
Either way, this might end up being the final chapter in Netflix’s survival saga.
If it’s going to happen — if Netflix is going to be acquired by an outfit that can streamline and augment the revenue-generation process — then Icahn is the company’s best shot at survival. If he can’t get a deal done, then expenses are going to keep rising for Netflix faster than sales are, which isn’t a viable long-term business model.
Thing is, while Icahn might have enough call options to buy 10% of Netflix, until he actually buys shares of the stock, he won’t even be able to wedge his way onto the board. That means we could see at least a little lift for NFLX in the meantime if Icahn truly wants some control of the company.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
Source URL: https://investorplace.com/2012/11/3-netflix-problems-that-carl-icahn-cant-fix/
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