Can Palm Buyout Rumors Be True?

The Friday rumor mill is at it again.  In fact this is a "re-rumor" because the company has been rumored, or rumoured from the British Inquirer, to be an acquisition candidate on what may be more than a dozen occasions.  Palm (PALM-NASDAQ) is enjoying a nice gain of 7% at $17.65 on rumors that Nokia (NOK-NYSE/ADR) may be interested in the company.

Nokia has been "rumored" before as an acquirer, but there is a huge list of past acquirers the rumor mill has thrown out there.  Apple, Cisco, Research-in-Motion, Microsoft, Motorola, Samsung, and many more have all at some point been thrown into the acquirer role by the rumor mill.  So if this sounds skeptical, you would be interpreting it correctly.  Can a deal happen here? Sure it could.  Is there value to it?  Sure there is.  Is anyone really going to do it?  Maybe, but they haven’t yet.  Is the company vulnerable?  Yes.

So let’s consider what a buyer would really be buying, because there is actually a plus side and there is actually some value.  First they would be buying a competitor to Research in Motion and one that already has they Microsoft business platforms signed.  They would be buying a global IP network cloud that is already in place with its partners.  The balance sheet is fine with accounts payable hardly above receivables and inventory and no real long-term debt.  It has more than $500 million in cash and equivalents and roughly $200 million more in assets I would count (my estimate is lower than the balance sheet claims).  Even if the company continues to falter it trades at a massive discount to RIMM on forward revenues and RIMM is just about the only company you can directly compare this to.  So if you strip everything out that I am counting as net tangible value, a buyer would be paying $1.1 Billion plus whatever deal premium they would have to pay.  Motorola put a dent in them with the Treo-copycat, but that seems to have abated and now the real competition is back to RIMM.

A bidder could come in and start an offer at $20.00 and that would make most of the holders whole that bought in the last two years.  There would likely be some substantial overlaps in providers and distribution channels that could be consolidated down in costs, assuming it is Nokia or someone similar.  This does not fit the bill of a private equity target, but who knows for sure in the current wacky world of private equity.  Before you go run out and buy this one thinking it will be acquired, you better keep in mind that any rumors on PALM have so far ended up being the boulevard of broken dreams and you better keep in mind that this one has a very checkered earnings and guidance history. 

I personally love the Palm phone products and many love the handhelds and have been very curious as to why someone hasn’t gobbled this company up during its weak-cycle.  Most of the commentary here points to the value and a partial checklist of what a buyer would be getting, but it is VERY difficult to get excited on an issue that has been rumored as many times as this one has with no fruition.

Jon C. Ogg
March 2, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.