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The Raiders and the Movie Business


"$52 million and he can't afford a proof-reader?"


Carl Icahn is back and he's still angry.

One of the last faces remaining from the 80's Corporate Raiding hey-days, Icahn is suddenly back in full voice, "advising" CEO's in public, pushing for buyouts and wrapping himself in the glorious flag of shareholder rights. It's as though the guy took a Rip-Van-Winkle style nap for 15 years only to wake up and find nothing changed.

The target this time is Blockbuster (BBI). Icahn, a 9+% holder, wants the company sold to a private equity group. He wants the company to pay out some of the cash hoard in a dividend. He thinks the company is undisciplined and believes that the $52-odd million BBI paid CEO Joe Antioco was "unconscionable".

The rise in private equity, shareholder rights in general, low rates and a range-bound market all favor the Raider set. The wolves have donned slightly different clothing this time around, doing more "pushing" towards buyouts rather than levering up and doing the buying themselves, but the underlying game is still the same: CEOs are fat, lazy and overpaid; pick a target, get very long then get very, very loud about your dissatisfaction.

We're still relatively early in the game for this kind of thing. There are a decent number of companies and execs out there who are hard to defend against Icahn's brand of criticism. Whatever you may think of the activist raiders, it's hard to disagree with what Icahn is saying or complain that the guys doing similar pounding of Circuit City (CC) executives should just "be patient".

The halos are crashing down on CEOs. With the markets sluggish to put it nicely ("lurching death" to be more colorful), private equity heating up in a huge way and exec pay-packages bloated, the trend of shareholders exerting pressure has more room to run. The wolves are smart and generally have the facts on their side. Executives are going to have to be on their A-Games, lest their next $50million be their last. Only the fastest, shrewdest execs will survive, once targeted by Icahn and the like.

To that point, Blockbuster's Antioco offered a quick rebuttal, issued to chain employees. "I and our executive management team remain committed to the plans we have laid out."

"I and my bulldog" discussed the battle between BBI's execs and Icahn's wolves. We remain of the opinion that we like the wolves' chances.

We also continue to like the price action and positioning of Netflix (NFLX). Is Netflix a great company? Not really. They are, however, positioned quite nicely on the semi-sidelines of the Blockbuster mismatch. NFLX can stick to their warped b-model knitting secure in the knowledge that Blockbuster won't execute their own web initiative in a way that makes it a threat to Netflix.

And at some point a sharp I-Banking wolf working for Blockbuster will point out that making a run at Netflix would be cheaper for BBI than doing it themselves and also get Icahn off BBI's back about the dividend.

Not advice in any sense... just sharing the process on a high-risk position and some observations on the games of the Street.

Position in NFLX

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