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Netflix moves to head off takeover with poison pill

Netflix has put in place a ‘poison pill’ measure that could prevent investor Carl Icahn from increasing his holding in the company.

Netflix is issuing rights to existing shareholders that will allow them to buy new stock in the company in the case on an unsolicited takeover. Netflix has declared a dividend distribution of one right for each outstanding share of its common stock.

Netflix said the scheme was designed to protect the company and its stockholders from unsolicited takeovers and “to enable all stockholders to realize the long-term value of their investment in Netflix”.

The move comes after Icahn acquired a 10% stake in the online video rental operator last week. The billionaire investor said that he expected consolidation in the online video sector to happen soon.

The new Netflix rights will only become exercisable if a party acquires 10% or more of the company’s shares – or 20% in the case of certain institutional investors – via a transaction that hasn’t been approved by the board.

In the event of the rights becoming exercisable, each will entitle established shareholders to buy, at an exercise price of US$350 per right, a number of shares of common stock with a current market value of twice the exercise price.

The rights will also enable existing shareholders to buy a portion of the shares of any acquiring party in the event of a merger or acquisition. Netflix’s board has also reserved the power to redeem the rights – which have an expiry date of November 2 2015 – at any time ahead of an event that causes them to become exercisable.