Consider The Source And Logic Behind Netflix Takeover Rumors

Dec.13.11 | About: Netflix, Inc. (NFLX)

When you hear Netflix (NASDAQ:NFLX) takeover rumors, consider the source.

On Monday, NFLX spiked on "chatter" that Verizon (NYSE:VZ) will make a play for it. Apparently, Porter Bibb, managing partner at Mediatech Capital, mongered the rumor on Bloomberg. Citing "rumblings" from "unnamed sources" at Verizon, Bibb speculates that Verizon is "very serious about Netflix or something similar." He even pulled a number out of the air, noting that a bidding war could ensue with a sale valued at $4.6 billion happening by Easter.

For the record, here's something from Bibb from August, 2010:

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And, interestingly, here's Bibb with even more takeover talk that took place in an SFGate.com article back in November, 2010:

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Click to enlarge

I don't know Bibb's motives, nor do I care to speculate about them. For all I know, he has a deep throat operating inside the bowels of Verizon's corporate headquarters, letting him in on the company's strategic plans. Or maybe not.

In any event, when a company considers a $4.6 billion deal for Netflix, they also must factor in the content obligations and international expansion mess they'll inherit. That tacks on, at a minimum, another few billion dollars. Any board member, bean counter or CEO who approves a buyout of anything but Netflix's DVD division, on its own, needs to have his head examined.

That does not mean it will not happen, but I highly doubt that it will. In fact, I would be shocked if anybody buys both sides of the Netflix business at once or the streaming segment as a standalone entity.

Reed Hastings is on record at last week's UBS conference. He did not answer directly when asked when Netflix would get back to profitability. As such, we cannot be sure if losses in 2012 will be a one-shot deal. Stumbling through the question, he added:

To get there (more international expansion), we've got to get the U.S. recovered. We've got to get the growth back. We've got to get back to break even first in the U.S.

Yes, sounds like an excellent takeover target.

Disclosure: I am short NFLX.

Additional disclosure: I am long NFLX June 2012 $40 put options.