Icahn's Netflix Deal Is Stalking Horse for Barnes & Noble
A hookup of NFLX with BKS would be a serious counterpunch to Coinstar's Redbox.
What I’m suggesting has not been floated or commented upon, but makes a lot of common sense. And some of the recent trade action seems to prove this out. Shares of Barnes & Noble shot up some 13% yesterday on the NFLX news and are adding to gains today even as Neftlix gives back so gains.
Not only does this deal make sense, but the Web gets tangled. Carl Icahn has a good working relationship with Ron Burkle, whose private equity firm Yucaipa owns 20% of Barnes & Noble. Burkle also has major takes in several supermarkets such as Dominick’s, as well as Alliance Entertainment and several local cable companies.
Netflix’s albatross is the sending of physical discs through the mail. Burkle has expertise in retail and the footprint to match. A hookup of NFLX with BKS would be a serious counterpunch to Coinstar’s (NASDAQ:CSTR) Redbox. It still keeps physical DVDs available, but at much better margins, and it allows the possibility of selling the devices (Nooks) that display downloaded content. It almost makes sense. Call it the revenge of Icahn's Blockbuster bankruptcy debacle. This time buy a high P/E firm to absorb the cheap Barnes & Noble and watch it grow.
The Option Action
Lest you think I’m some conspiracy theorist, let it be known that on October 10 there was massive call buying in the January $20 option of which 13,423 were purchased at prices between $0.75 and $1.05 a contract. This was nearly 19x the daily average volume and has translated into a 90% increase in open interest in the strike. Granted, this came on an earnings announcement and other near time strikes in the October and November expirations traded above average volume. But the spike in price never came and those positions have been liquidated.
Burkle’s initial buy of Barnes & Noble spiked the stock to $26. I think he’d be happy getting out around $23. Look at the January $19/$22 call spread at $0.60 net debit.
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