What if Palm doesn't find a buyer?

What if Palm doesn't find a buyer?

Summary: 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.

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TOPICS: Mobility, Banking
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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.

Topics: Mobility, Banking

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21 comments
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  • Palm's best option is to

    sue M$ for patent infringement and use those money to advance Linux or adopt Android.
    Linux Geek
    • Not Really

      While I would like to see them advance Linux and Android, that isn't really their best option. (You really need to get over the whole M$ hatred thing. They're a business, and when compared to others, just aren't that evil.)

      Taking on Microsoft would require money, and Palm doesn't have any. Moreover, a patent lawsuit would take years; and that's time that Palm doesn't have. Selling to an interested party is better than trying to get rich out of the legal system.
      Rob Oakes
      • He's just trolling

        he probally doesn't care either way for Windows, Apple, or Linux, he's just out for a laugh.
        John Zern
        • who's trolling?

          if you have a solution for palm, spell it!
          Making knee jerk comments about me it's not going to make a difference for the industry.
          Linux Geek
      • Not to agree with Linux Geek....

        but isn't that the very reason why companies like the goal mine
        operation in Virginia get way with illegal stuff all the time? They do
        illegal things to employee's knowing an individual could not hop to bring
        a case to court especially a recently fired or laid off one. They prey o
        weaker competition and steel from said knowing that a court fight would
        not see the light of day and they win by default. "IF" Palm has a case
        perhaps they should look to outside sources in order to win this one and
        make some sort of patent deal with those who help them? Or offer a
        piece of the settlement pie? Maybe both.

        Pagan jim
        anonymous
        • You can't lose if you don't fight, I suppose,

          But you surely won't win. People - and companies - who chose not to fight for the fear of loseing are indeed the oil that frees up the cheating engine. NEVER RUN!
          Papa_Bill
      • Getting rich

        "out of" the legal system would be just plain wrong. But a well founded lawsuit will always have willing advocates working THROUGH the legal system.
        Papa_Bill
  • *Of course* they're not going to find a buyer

    Palm has been dead for a long time but just hasn't fallen over yet. There's no reason for anybody to buy Palm. At this point their IP really isn't worth anything, and they're not making any gizmos that people want to buy.

    It's too bad, really. I have never owned a mobile device that wasn't running PalmOS, and almost all of them (I had a bad Visor once) have been very good. No way I'm getting a Pre, though - I've heard great things about WebOS, but bad things about the Pre, plus with all the hanfwriting that's on the wall I don't want to be the last person on earth to buy something with "Palm" stamped on it.

    Looks to me like Android is the future.
    doodlius
  • FlashOS

    Palm's best bet is to sell themselves to Adobe. Adobe
    needs a way into the mobile handset market (with no
    hardware experience) and Palm needs some way to
    differentiate itself from Android/iPhoneOS. A FlashOS on
    a Palm hardware might be cool.
    Jombi
  • NTP

    NTP or a similar Patent Holding company will pick them up eventually,
    contract out the remaining support, then use some patent WMDs to make
    a few bucks.
    Gritztastic
  • Just seems like a shame!

    At one time Palm had a great product suite and apparent future, but I think they have done this to themselves coming to market too late and the Pre wasn't made available on a large enough carrier or set of carriers quickly enough.

    I think the writing was on the wall for Palm when they split the OS from the hardware group years ago. When Access got the Palm OS, innovation seemed to stop for years and when they did come out with the Pre (which does look like a very good product) it was just too little, too late making Palm an also ran!

    To me the moral of the story is "don't stop innovating and resting on your current product suite too long."

    Palm Pilot owner.
    TheRealUMLGuy
  • Are they looking?

    Are they looking? I thought that buying Palm was just a
    crazy idea invented by some ZDNet blogger who cares more
    about the stock market than the future of the company.
    CobraA1
    • Looking for a chump

      I have a Palm T|X
      I also have my first 4.77 MHz IBM-PC

      Technologically, they're about equally useful now.

      What would the buyer get for the money? Not much.

      I believe they'll be joining the ranks with Kaypro, Osbourne, and NorthStar.
      oldbaritone
  • RE: What if Palm doesn't find a buyer?

    Maybe Palm should try to get a deal with a company putting webOS on netbooks. The OS seems pretty cool, I would hate to think they wasted so much time on a OS that was DOA basically at launch.
    step69
  • such a shame

    Palm was a great company back in the day. They were
    serious innovators, and developed some of the first
    PDA's. But it seems that they just took too long to adopt
    newer technologies (and kill their OS) and they ended up
    getting killed themselves. I hope someone buys palm and
    turns it around.
    Jimster480
  • Palm's mistake, wasting resources building operating systems.

    For reasons I will never fathom Palm has spent vast resources jumping from one OS to another and going through the effort to roll their own many times.

    Why was it a mistake? Because they didn't concentrate on the user interface and what users prefer. TGhey haven't advanced the hardware technology, their interface is a "me too" at best and apps. are too reliant on others.
    No_Ax_to_Grind
    • Yes.. Palm Squandered the Good They Had! :D

      They spent more on buying, switching, developing and
      abandoning OS's like musical chairs. Kept their
      grandfather style hardware designers sitting in
      rocking chair rather than doing anything innovative!

      They bought a complete Object Oriented OS that was
      too far ahead of it's time and just kill it. BeOS
      today could have been more like Android will never
      be, only wants to be! It's still a Macro Kernel OS in
      Micro Kernel clothing and hardware. It was (some say)
      the only TRUE FULL OBJECT ORIENTED OS. That would
      have been perfect for what people are trying to do
      today!

      Then started a countless reworking of an OS that
      should have been tossed in trash with their hardware
      design team, sooner. Then trying to stack their archaic software on top of a Linux kernel instead of
      starting from scratch. The BIG PROBLEM was, they
      became Top heavy with a mix of bureaucratic blunders
      and idiots with power. Some of which will never be
      topped!

      ....if they are the king of anything it's trying to
      go in too many directions at once. In the end kicking
      themselves in the arse for their long term ignorance
      without fixing any of the original problems!!!

      FEEL SORRY for the STOCKHOLDERS!
      i2fun@...
  • re: What if Palm doesn't find a buyer?

    That Palm is even in [i]need[/i] of a buyer is a bit of an issue for me. It is a real reflection of what happens when a company ignores their customers. My history with Palm goes back to 1998 and the Palm III. The device had several outstanding features. It was quick, intuitive and extremely usable while on the go. It provided an elegant UI and it made me more productive. Palm had found an excellent interaction between hardware and software. All the things that the Newton and the WinCE devices at that time were [b]not[/b]. I used - and literally wore out - several devices over the years culminating with a LifeDrive and Treo 680. In fact, with these two devices, I had hoped that Palm had gotten its groove back. In spite of some of the complaints, the LifeDrive was actually quite powerful/useful for 2005 - especially with the software patch.

    Two things went wrong, however. After the LifeDrive, Palm simply seemed to give up on any attempts at innovation. Or at least on innovation based on what customers wanted (the Folio debacle being a point here). The PDA attempts that followed seemed more repackaged attempts to generate sales than to solve my problems. And while the WinMo Treo's probably provided the best WinMo experience at the time, that OS just doesn't approach the elegance OR usability of PalmOS. Again, a disregard of the customers needs.

    This disregard of the customer - the second thing that went wrong - actually started well before they abandoned innovation. You could even say the lack of innovation is a reflection of this. But as far back as the m500, Palm was becoming much more difficult to deal with as a customer. Design issues were simply unacknowledged. Or when finally admitted to, they expected the customer to pay addition fees for their mistakes, such as the USB cradle issue of the 500 series. OS/Firmware updates became more and more rare. Palm Desktop - once the best PIM available - became more and more dated and no efforts of modernization was ever evident.

    When they finally did produce something that showed real innovation - WebOS and the Pre - they made an exclusive deal with the one service provider that was bleeding customers as if it had a ruptured aorta. And without being in that providers service area the device was a brick, so there wasn't an option of just using it as a PDA. I began to feel like they were making a conscious effort to drive me away as a customer.

    At the end of it, I didn't abandon Palm. They abandoned me. After my Treo 680 finally wore out - and I still consider it the best converged device I have ever used, including the iPhone - I ended up going with an HTC phone running WinMo 6.5. It's a good device that manages all my telecom needs well, but it's a lousy PDA. Those activities are handled by a 3rd generation Touch. Earlier models didn't quite give what I needed, but iPhoneOS 3 is finally there. Plus most of my old PalmOS apps can be found in iPhone versions. I have made a conscious effort for several years to remain with Palm. If you check the blogs/sites it's obvious that many others have, as well. That didn't seem to suit Palm's interest and now they seem to have achieved their objective. Unfortunately, it is hard to stay in business - or even sell out - if nobody wants you. The saddest part is how unnecessary this is. Simple attention to the voice of the customer was all that was needed to avoid this.
    RaulYbarra
    • I have to agree

      From what you said, it is too bad that you were not an executive of
      Palm. I used a Palm back in the day and found it very useful to
      organizing my daily life.

      I am still using my Treo 680 until the next generation iPhone is
      released to other carriers. I haven't upgraded yet as I don't care for
      AT&T's overall service.

      Too bad that Palm had their bad business decisions putting them into
      the shape they are in today. IMHO, only a matter of time until they
      close the doors. Anything at this point is like rearranging the deck
      chairs on the Titantic.
      ExCorpGuy
  • RE: What if Palm doesn't find a buyer?

    Good!
    Had they not blown off legacy users, had they screwed with there OS, and had they provided up grade to accommodate Vista 64 bit etc. Perhaps they would not be in the pickle they are in. Good will goes along way with customer loyalty!!!!!
    alpha-dude