There have been rumors to this effect before, all of which sent the stock north, but they all turned out to be baseless. But according to a number of sources, this time it’s for real, and they have even named Morgan Stanley as the investment bank which is fronting the sale. They have found evidence for this in the report by hedge fund Galleon Group at the beginning of the month, that it had acquired 6.2% of Palm. Info-Tech Research Group analyst Carmi Levy claims that an entry by this fund is usually a sign that a merger or acquisition is on the cards.
It’s difficult to see Motorola getting involved in an adventure such as the acquisition of Palm, which would harm its share price in the short-term and antagonize its frustrated investors for the second time, after publishing its severe profit warning at the end of 2006. What’s more, it would probably be afraid of its new investor, serial troublemaker Carl Icahn, who is looking to win a seat on the Motorola board after he announced he would buy 33.5 million shares, 1.4% of the company. Icahn has already made it clear that his goal is to get Motorola to return a large chunk of the cash it has accrued to investors.
Having said this, Palm actually looks like a classic buyout target for private equity firms. It currently has a market cap of $1.6 billion, almost equal to its annual sales, it has no less than $500 million in cash, and it generates cash at a rate of $120 million a year. Last month’s unveiling by Apple Computer Inc. (AAPL) of its iPhone sent Palm down to a low of $13.50. By last Thursday, the plethora of rumors surrounding its imminent buyout had lifted it back up to $16.50.
PALM 1-yr chart
Published originally by Globes [online], Israel business news - www.globes.co.il
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.
