Palm: What Would a Buyer Need to Pay?

Well the reports are rampant again on Palm (PALM) being a takeover candidate with a bid as soon as Thursday.  Why Thursday?  Because its earnings are Thursday.  This batch of rumors now reported everywhere has Motorola or Nokia as the bidder, while the company may want a private equity buyer.  We noted on March 2 "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."

In that same article here is what we noted a buyer would be getting, and we didn’t even include the technical staff and intellectual property: 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.

So, earnings are coming out Thursday and the risk is that if they are very weak again that a buyer can stand back and be a scavenger OR if the earnings are too strong then they’ll have to pay up even more.  It is still a coin toss, but if a buyer wants to win a deal here with shareholder approval they will have to start around the $20.00 level.  It is also assumable that a would-be acquirer would get at least some access to the books and have a feel for Palm’s outlook.

If they start at a lower price there is a perception that others may want to get in the fold and that bid could be higher.  These shareholders that have been in the stock for some time are not likely to approve a "takeunder" or an at-the-money bid, particularly since the stock was over $20.00 just one year ago.  Maybe after two years of rumors this one will finally come to fruition.  IF a bid comes in at under $20.00 shareholders are likely to say, "This is PALM, not SLAP." 

After almost an hour of trading PALM shares are up more than 4% at $18.90 and have already exceeded an average day’s trading volume.  As a final reminder, this one has been rumored or speculated upon as a takeover candidate in what feels like more months than it hasn’t.  This $20.00 area is our estimate and there are no assurances at all that a buyout offer is imminent nor that the buyout offer will come in at that level. 

Jon C. Ogg
March 20, 2007

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