Billionaire investor has 10% stake; could company be in play?

The news that corporate raider Carl Icahn is amassing shares in Netflix set off immediate speculation that the company is in play.

Icahn himself fueled the file by disclosing Wednesday in a Securities and Exchange Commission filing that he thinks Netflix stock is undervalued and that the company “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 filing revealed that Icahn has snapped up 5.5 million shares — or 9.98% — of Netflix in a series of transactions between Sept. 4 and Oct. 25.

Icahn is “considering ways for the issuer to maximize shareholder value but reached no conclusion” and “may in the future seek to have discussions” with Netflix, the filing added.

The Icahn news buoyed Netflix’s volatile shares, which surged by 20% in midday trading. They settled at $79.24, up 14%, a standout in an overall soft market.For decades, Icahn has been buying into companies he considers undervalued and poorly managed and pressures execs to change course or sell. He’s had mixed results in the showbiz space, with high-profile runs at Time Warner, Blockbuster and, most recently, Lionsgate.

But Netflix seems an ideal target. The stock traded at close to $300 in the summer of 2011 but has been driven down by strategic missteps that alienated customers as well as competition from video-on-demand, Hulu, Amazon and others. It still has a strong following on Wall Street but took another big hit last week when it fell short of its own predictions for new subscribers in the third quarter.

M&A rumors have swirled around Netflix for more than a year, with Apple, Microsoft and Comcast among the usual suspects.

However, analyst Vasily Karasyov with Susquehanna Financial Group, noted that Netflix has corporate governance structures in place that will make it a long, hard slog for Icahn to mount one of his trademark board-replacement efforts: Netflix’s director terms are staggered, meaning that only one-third of its members are up for re-election each year. It also has a poison pill provision that will effectively prevent Icahn from mounting a hostile takeover bid in the near future.

At the same time, Karasyov asserted that Netflix is vulnerable because of its overly ambitious domestic subscriber projects and concerns among Wall Streeters that Netflix’s overseas expansion push may take longer to generate significant profits than previously forecast.

A Netflix rep declined to comment Wednesday on the Icahn news.

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