The new plan “is intended to protect Netflix and its stockholders” from a takeover effort that the board believes would not “enable all stockholders to realize the long-term value of their investment in Netflix,” the company says this morning. But it adds that the effort would not interfere with a business deal that’s approved by the board. The terms appear to be specifically designed to block corporate raider Carl Icahn, who disclosed last week that he owns stock and options equal to 9.98% of Netflix. It would essentially enable the company to flood the market with shares to dilute any additional purchases he makes. Specifically, Netflix would give those owning stock as of November 2 a collection of rights equal to the number of shares they already own. Each right would give the owner the ability to buy one one-thousandth of a share of a new series of preferred stock at an exercise price of $350 per right. These new rights would become exercisable once an individual (say, Icahn) owns at least 10%, or an institutional investor acquires 20%, of Netflix’s stock without the board’s approval. The rights will expire on November 2, 2015 if they haven’t been redeemed.

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Netflix already had several weapons in its arsenal to prevent Icahn from waging a hostile effort to buy the company, or launching a proxy fight to take control of its board. The company’s staggered elections mean that only a third of the directors are replaced each year. Netflix doesn’t allow shareholders to call a special election to pick new directors. Netflix also already has a poison pill that would enable the board to issue up to 10M preferred shares. What’s more, corporate law in Delaware, where Netflix is incorporated, bars companies from combining with a holder of more than 15% of its stock unless the holder has had the shares for at least three years — unless the board approves the transaction.

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