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Talk of Palm Takeover Surges |
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As rumors intensified last week that Palm Inc. is set to be acquired, analysts speculated that a buyer would likely dispose of the company's handheld division to focus exclusively on its smart phone business.
Sunnyvale, Calif.-based Palm declined to comment on the growing speculation that a range of companies, from Motorola Inc. to Nokia Oyj to private equity firms such as Texas Pacific Group, are interested in buying the maker of the popular Treo smart phone.
Motorola was in pole position to acquire Palm, according to CNBC, which anonymously cited a Palm shareholder saying that the Schaumburg, Ill., cell-phone maker would announce an acquisition last week.
Motorola, which has had little success with its home-grown Q smart phone, has recently made a number of acquisitions designed to enhance its smart phone capabilities. Last year it paid $3.9 billion for Symbol Technologies Inc., which makes technology for transmitting data to mobile devices, and bought mobile device software maker Good Technology Inc. for about $500 million.
A deal for Palm also could temporarily ease pressure on embattled Motorola chairman and CEO Edward Zander, who is struggling to arrest a steep slide in the company's stock price. Long under pressure to make use of its more than $11 billion in cash to help stimulate growth, Motorola last month became a target for investor Carl Icahn, who initially bought a 1.4 percent stake in the company before increasing it to more than 4 percent.
Late in the day, Motorola provided another sign that its handheld business requires help, when it announced that its first quarter and full-year results would fall short of estimates due to lower-than-expected sales of mobile devices. However, Motorola added more uncertainty to the Palm acquisition rumors by also announcing it would expand its existing $4.5 billion share buyback to $7.5 billion, effectively using up a large portion of its available cash.
Motorola also announced that its CFO, David Devonshire, would step down on April 1 and would be succeeded by acting CFO Thomas Meredith.
Although a number of companies could benefit from Palm's technology, the company's smart phone unit is the crown jewel. Any strategic buyer would have significantly less interest in Palm's handheld business, which makes personal digital assistants and other devices that lack phone functionality. These devices still generate robust sales, but they have not been the main focus at Palm since 2003, when it acquired PDA maker Handspring Inc.
"Any buyer would probably spin off the legacy handheld business, or even just shut it down," said Jonathan Hoopes, an analyst with ThinkEquity Partners. "It still generates cash, but it's a distraction."
In its second quarter, Palm shipped 603,000 Treo smart phones and exactly the same number of handhelds. The company said both products generated healthy profit margins, although the higher-priced Treo generated more than twice as much revenue.
At a time when Apple Inc. is readying its ballyhooed iPhone device, the preference for a handheld product with phone features is stronger than ever, both among consumers and any would-be buyer of Palm. And in an environment where computers are getting smaller and phones are being built to incorporate more computing power, the rationale for Palm to seek a deal is clear.
Best known for the groundbreaking PalmPilot device it launched in 1996, Palm today continues to offer a popular and intuitive user interface, but it no longer stands heads and shoulders above the competition the way it once did. By most accounts, the company, which last year generated $1.6 billion in annual revenue, has lost the fire-in-the-belly startup mentality that drove its early success.
"Palm has a lot of design expertise, but I don't think they're an Apple," said Hoopes, referring to that company's ability to bring out a string of innovative products.
Palm's share price of late reveals similar concerns. The stock has steadily risen during 2007 on persistent takeover rumors, but it still remains slightly below the $20.20 per share price it sold for a year ago. Palm shares closed up last week 68 cents, or 3.6 percent, at $19.45. Trading volume was more than 3 times usual levels, further fueling acquisition talk.
At the same time, many analysts still consider Treo's user interface the best on the market and say it could benefit any company looking to improve its own handheld technology.
The best thing a buyer like Motorola could offer Palm is scale, which will be increasingly valuable as smart phones become standard and prices fall. Motorola last year generated revenues of $42.9 billion, and being part of a company that big could benefit Palm in a multitude of ways, from lowering its materials costs to bringing it better worldwide distribution.
Submitted Date: Mar 28, 2007
Source: Law.com
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