Netflix shares rise on rumor of Microsoft takeover

Shares of Netflix soared over 13% higher on Friday as speculation circled the street that Microsoft was about to make a bid for the streaming video provider. The spark for all of this goes back to Netflix CEO Reed Hastings' decision to step down from the Board of Directors of Microsoft. If Microsoft is planning a bid for Netflix, obviously the CEO of the target company can't be sitting in the boardroom of the possible acquirer and listening to secret strategic plans.

While there could be plenty of other innocent reasons for Hasting's action, the drop in Netflix shares by more than 50% since the beginning of the year has made the company a much better value for a company interested in buying it. With a market cap of $3.7 billion, Netflix is certainly affordable for Microsoft which is sitting on $66 billion in cash and equivalents as of its latest quarterly report. Even figuring a healthy premium for Netflix holders into the equation, Redmond based Microsoft could easily make this an all-cash deal.

Why would Microsoft be interested in Netflix? It could have something to do with content for the Xbox 360 as Microsoft turns the game console into a home entertainment device. It also could be a way for Microsoft to counter Google's ownership of YouTube which has become a staple on iOS and Android smartphones. The red Netflix square icon can now be found on most smartphones as well, and buying Netflix would give Microsoft an way to reach millions of smartphone screens.

source: Forbes