NEW YORK ( TheStreet) -- Carl Icahn says he built a massive stake in Netflix ( NFLX) because he thinks somebody will take the "undervalued" company out.
That's only partially true. Unlike most mere mortal investors, Icahn can put the cart before the horse. He could have said he was buying NFLX because he hears Mitt Romney will take the CEO gig if he loses the election and the stock would have moved higher. That would have become the hot rumor. The media would have lapped it up! Icahn makes the news. He doesn't report it. He doesn't react to it. He took the oldest rumor on Wall Street and gave it instant credibility. Because, to this point, it had none. That said, I believe in the irrationality of tech companies such as Microsoft ( MSFT) as much as I do my own instinct and intellect. With that mind, irrelevant Netflix buyout chatter contains some meaning. In other words, it wouldn't shock me if somebody makes the move. From a Netflix perspective, it makes all the sense in the world. I advised Reed Hastings, on several occasions, to sell his DVD division before or shortly after he shot it in the back. He refused. It's been about a year since Netflix went to the market to fundraise $400 million it claimed it didn't really need. Why didn't Netflix just take out one of those lines of credit? Lots of big, healthy companies -- even ones with cash -- do it, particularly when rates are low. That's an actual safety net. Why dilute your stock even a little bit? Easy answer, and it's the same answer to the absurd question: "Would you give Netflix what amounts to a loan?" More to the point with Icahn: "Would anybody really buy Netflix, as it stands today?" In a rational world, "absolutely not" spews freely as the answer to both questions. Netflix has, at a minimum, $5 billion in streaming content-related off-balance-sheet obligations, with roughly $2 billion due in less than a year. To keep it simple for us non-MBAs, that's debt.