What if Palm doesn't find a buyer?
Palm's brain drain and efforts to keep other executives from jumping ship may indicate that there are no ready buyers for the company. Analysts are increasingly betting that Palm shareholders won't get much if Palm does manage to sell itself.
On Friday, Palm said in regulatory filings that Michael Abbott, senior vice president of software and services, has resigned. Meanwhile, five other executives including CFO Doug Jeffries were given restricted shares. Two other Palm executives got retention bonuses.
Last week, these moves were portrayed as ways to keep executives around as Palm sells itself. But is that really the case?
Morgan Keegan analyst Tavis McCourt doesn't seem to think Palm has any buyers. He downgraded Palm shares. In a research note Monday, McCourt said:
These are not activities that inspire confidence about Palm's ability or willingness to sell out at a premium valuation in the near term. We are downgrading to an Underperform rating as a near term buyout would appear less likely based on these actions, while Palm's ability to execute a turnaround internally remains difficult.
The best case scenario. Palm finds a buyer---perhaps at cheaper-than-expected valuation. Worst case: Palm can't find a buyer at all.
Related: Palm for sale: What's the best case scenario?
Executives and the company may see the same options ahead. That's why it's becoming increasingly difficult to keep Palm executives around.
Indeed, there are a lot of skeptics about Palm's prospects. Morgan Joseph analyst Ilya Grozovsky gave Palm a price target of nil. Yup, that's zero.
Grozovsky wrote in a research note:
As of F3Q10, Palm had $391mm in debt and $376mm in redeemable preferred shares, accounting for $767 million of any take out bid. Should the company attract a buyer - which we believe is unlikely - and sell for $1bn - which we also believe is unlikely - it would leave common shareholders with approximately $233mm, or $1.40 per share. The stock is currently trading, without any take out premium, with an Enterprise value of $1.6 billion. We do not expect either scenario to play out, but if it does, common shareholders have little to gain, in our view.
Although we believe Palm being acquired is unlikely, we expect that any possible acquisition of the company would likely be defensive or for its IP portfolio, as opposed to a strategic buyer. We would expect the buyer to use Palm as a vehicle to sue others who infringe on Palm's patents, (like NTP did to RIM and settled for $613mm in 2006) or for the buyer to be a company who is already infringing on Palm's patents and protecting itself against an expensive lawsuit. In either scenario, we would not expect the take out price to be significant given the potential risk of losing a lawsuit and the value of paying out any penalty of settlement.