Netflix shares soared 13 percent higher on Friday, Oct. 26, on rumors that Microsoft may be interested in buying the company.
Speculation has recently surfaced online that Microsoft was about to make a big investment in the video streaming provider. Rumors first started back when Netflix CEO Reed Hastings decided to step down from the Board of Directors at Microsoft. If Microsoft is indeed targeting Netflix for an acquisition, the CEO of the target company cannot be part of the boardroom of the potential acquirer.
Hastings may have had several reasons for deciding to depart from Microsoft's Board of Directors. In addition, Netflix' more than 50 percent decline in shares since the beginning of the year has made the company much more valuable for a potential acquirer. With a market cap of $3.7 billion, Netflix seems like an affordable purchase for the software giant. According to the latest quarterly report by Microsoft, the Redmond-based company currently holds $66 billion in cash and equivalents.
One thing that remains unclear, however, is why Microsoft would be interested in purchasing Netflix. One reason could be Microsoft's efforts to turn its Xbox 360 gaming console into a home entertainment system. Another possible reason could be an effort to compete with Google's ownership of the popular YouTube. By purchasing Netflix, Microsoft could reach millions of smartphone users.
Meanwhile, the potential Netflix acquisition by Microsoft is still in the rumor stage, and very little information is available regarding the negotiations. Most of the action goes behind closed door as Microsoft plans the bid, and it is difficult to tell at this point just what exactly is going on.
If Microsoft were to acquire Netflix, however, Windows services could soon see some better integration. As for Netflix, the service is expected to improve in time, whether Microsoft purchases it or not.
A spokesman for Microsoft has declined to comment on rumors of the Netflix acquisition plan, which was first reported by Forbes. CNET backs the rumors and claims to have seen an e-mail from a Wall Street banking firm indicating that Microsoft was offering $90 per share for Netflix.
