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Icahn's Netflix Deal Is Stalking Horse for Barnes & Noble

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A hookup of NFLX with BKS would be a serious counterpunch to Coinstar's Redbox.

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MINYANVILLE ORIGINAL Yesterday news broke that Carl "the Agitator" Icahn took a 10% stake in Netflix (NASDAQ:NFLX) and speculation abounds about how he will create value from this video retailer. Netflix shares shot up some 12% on immediate speculation that Icahn would follow his usual procedure and look to make a sale, merger, or otherwise break up the company.

The obvious names that were bandied about included Verizon (NYSE:VZ), Comcast (NASDAQ:CMCSA), and Disney (NYSE:DIS). How off-track can you be? Which one of the these mega media firms that control both distribution and content, and have been playing hardball with Netflix for the past two years, would suddenly cede their advantage to Netflix, especially one run by a stubborn Reed Hastings who now has greenmail extraordinaire Icahn breathing down his back?

But I see a way out of this -- though it may be too subtle and laden with some conspiracy -- that could save not only Netflix, but prove to be a brilliant move of the Trojan-horse variety. The real end game is Netflix buying Barnes & Noble (NYSE:BKS), seller of words and maker of Nook.

First let's realize that Icahn has no real hope of finding a buyer for Netflix and its breakup value is certainly less than the current $4.4 billion market cap with a 102 price-to-earnings ratio ("P/E"). Why would the content providers pay such a premium for a company that is clearly struggling? Oh yeah -- growth in the Nordic region.

A recent note from Wedbush Securities analyst Michael Pachter said he considers Netflix to be overpriced at its current market value at $4.4 billion, making it unlikely the company will be fielding takeover offers any time soon.

"I think [Icahn] is completely uninformed about this business and I think he is completely wrong about the variety of strategic buyers for this business," Pachter said.

Icahn, 76, has a long history of building up large stakes in troubled companies and then pressing them to consider selling themselves, cutting costs, or replacing top executives and board members. In many cases, Icahn has muscled his way onto the boards so he can be in a better position to promote his agenda.
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No positions in stocks mentioned.

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