Ever since it launched the Pre, smartphone maker
Technology companies Dell Inc. and Microsoft Corp. and handset manufactures Nokia and Motorola have all been named as potential suitors.
Driving the deal speculation is the promise of Palm‘s new Pre phone and tricked-out software, which impressed industry analysts when it launched in January.
Bankers and analysts say the Sunnyvale, Calif.-based company could catch the fancy of any company that wants to bolster its mobile presence and provide a challenge to Apple Inc.’s iPhone and Research in Motion’s BlackBerry devices.
But Palm’s newfound sexiness may not lead to a deal in the near future because the company, which is partially owned by buyout firm
“The biggest hurdle is the price,” said Kaufman Bros. analyst Shaw Wu, of a Palm deal. “No one is arguing in terms of the merits. It boils down to price.”
Palm’s stock has quadrupled this year on buzz around its new phone and software. Yet, details on how many units it has sold are skimpy, making it difficult to value the success of Palm’s turnaround story.
That has not deterred market chatter. Earlier this week, Palm shares soared on rumors that Nokia, the world’s largest mobile handset maker, was interested in bidding for the company.
People expect that Palm, one of the earliest smartphone makers, will be able to break the grip of iPhones and BlackBerries, but may lack the scale to do so on its own.
“Palm now has a product that looks much better, and the company probably needs scale,” said Peter Bell, a venture capitalist at
Some analysts have suggested that Dell could make a play for Palm as it seeks growth opportunities outside its low-margin hardware business. Dell is building mobile devices for the Chinese market, which has also fueled speculation about a combination.
But Dell, which had $11.7 billion in cash at the end of July, instead chose to beef up through its recent $3.9 billion acquisition of technology services company Perot Systems Inc.
Although a mobile acquisition is not inconsistent with Dell’s strategy of building its consumer presence, the hardware maker is “probably not going to go after Palm immediately after buying Perot,” one technology banker said.
Palm’s market capitalization is $2.4 billion. Based on the average 34% premium that technology, media and telecommunications companies have been sold for this year, according to Thomson Reuters (publisher of PE Week), this translates to a price tag of about $3.2 billion. In late 2007, Elevation Partners acquired a 25% stake in Palm for $325 million. —Anupreeta Das, Reuters