ANTI-DEFENCE STRATEGY ADOPTED BY NETFLIX IN

RESPONSE TO HOSTILE TAKEOVER BY CARL ICAHN

Netflix's board of directors adopted a "Poison pill" strategy to fight off a hostile
acquisition attempt from activist investor (shareholder) Carl Icahn. The
shareholder rights plan would flood the market with newly issued shares if
someone bought more than 10% of the company.

“Poison pill strategy is a type of defence strategy employed by a target company

to deter or prevent a hostile takeover by an acquiring company. This approach is
used to make potential targets appear less appealing to potential acquirers.”

(From the above graph) Last Wednesday, Mr. Icahn revealed that he had
acquired a 9.98 percent stake in the company. Netflix's stock has lost three-
quarters of its value since peaking in July 2011, following a 60% price hike that
resulted in a drop-in subscriber.

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Many customers objected to the need to open two different accounts as a result
of management's failing attempt to split off its DVD-rentals-by-post business in
order to focus on online streaming. Although the price hike resulted in a short-
term rise in earnings last summer, profits dropped by 95 percent in the first nine
months of this year compared to the same period last year as customers moved
away and the company incurred the costs of aggressive global expansion. Mr.
Icahn has been the victim of the "poison pill" method, which is a strategy used by
publicly traded company management to protect themselves from investors who
fear they will depose them following an acquisition.

Even though the 10% trigger threshold was created expressly for Mr. Icahn, it is
unusually low. Netflix's board has implemented a higher 20 percent minimum if
the shareholder is a financial institution rather than an individual investor. Mr.
Icahn called the management move "poor corporate governance" and criticised
the fact that just a third of the company's board of directors is up for election by
shareholders each year.

Netflix, according to the investor, is cheap and would be a fantastic acquisition

for other companies. Potential buyers have been touted as Microsoft and Amazon.
Mr. Icahn has not announced whether he intends to seek management or corporate
policy changes, as he has in the past with other corporations in which he has
invested. The poison pill was "designed to safeguard Netflix and its stockholders
from efforts to obtain control of Netflix that the board of directors decides are not
in the best interests of Netflix and its stockholders," according to Netflix's board
of directors.

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