Palm Deal in the Final Stretch

Original Article here ... Unstrung - Mobile Applications - Palm Deal in the Final Stretch - Wireless News Analysis

MARCH 19, 2007

A Palm Inc. buyout could be finalized by Thursday this week, demanding $20 or more per share, according to sources close to the situation. Nokia Corp. (NYSE: NOK - message board) is seen as the leading vendor bidder; while Palm's management is said to prefer a private equity buyer.

Morgan Stanley -- the banker that the PDA pioneer has been working with to explore its options -- wants to wrap a deal by the 22nd, the day that Palm is due to report its third quarter results for its 2007 fiscal year, according to the latest word from sources.

"They really want to get it closed on the 22nd," a source told Unstrung on Monday morning.

There are up to four buyers on the hook in all -- two private equity firms and two rival gadget vendors. Texas Pacific Group is said to be one of the interested private equity firms and it is speculated -- but not certain -- that Silver Lake Partners is the other. (See Palm's in Play .)

As Unstrung has already reported, Nokia Corp. (NYSE: NOK - message board) is the key bidder in the vendor world. The number one handset vendor is said to be considering a bid at $19 to $20 a share. (See Palm Action Heats Up .)

What may surprise some, however, is the talk that Motorola Inc. (NYSE: MOT - message board) has been reconsidering its position and may try to block Nokia with a bid.

Here's why, according to one insider familiar with the thinking: Ron Garriques, the former Motorola Executive VP of the handset business who had been opposed to the deal, left Motorola and is now at Dell Inc. (Nasdaq: DELL - message board). Motorola CEO and Chairman Ed Zander is currently running the day-to-day of Motorola's handset business.

Zander has said that Motorola needs to get out of its low-end price war with Nokia and others and introduce more successful mid-tier and high-end models. "The Treo 680 is doing well, and it is exactly the sort of 'feature-rich phone' that Zander said the company needs to develop to get back some pricing leverage," the source says. (See Palm: The Device Angle.)

The thinking is that a deal for Palm would also help Motorola quiet down billionaire share-holder Carl Icahn, who is trying to grab a seat on Motorola's board. In buying Palm, Motorola could demonstrate that it's not just sitting on its cash, but using it strategically. (See Icahn Buys Moto Shares and The Wrath of Icahn.)

A Motorola buyout would also block Nokia and stop it from acquiring a ready-made stake in the North American enterprise market through a Palm takeover, while repositioning Motorola against Research In Motion Ltd. (RIM) (Nasdaq: RIMM - message board; Toronto: RIM) in the corporate world. "If they own Palm, all of a sudden Motorola becomes Microsoft's best hope for competing against RIM and Apple."

"It all makes sense," comments a financial analyst who wished to remain nameless (and faceless as well).

A private equity buyout is still said to be Palm management's preferred option, however. Motorola, Nokia, and Palm haven't yet responded to calls for comment.

Palm's stock was up 1.80 percent, or 32 cents a share, at $18.14 in Monday trading on the Nasdaq.

— Dan Jones, Site Editor, Unstrung