Palm Seen Struggling to Find a Buyer, Keep Staff
Palm is unlikely to find a buyer at its current stock price and probably has none on the horizon due to recent activity in its executive ranks and the loss of a retailer, said analysts from UBS AG and Morgan Keegan & Co.
That executive activity includes the resignation of Senior Vice President Michael Abbott, who served as head of software and services and led the development of the WebOS app platform and services.
It also involves implementing a compensation program to keep any more key executives from resigning. Palm has issued 1.15 million in restricted shares and $250,000 in cash bonuses to Jeff Devine, senior vice president of global operations, and CFO Doug Jeffries.
Palm (NASDAQ: PALM), maker of the Pre and Pixi smartphones, recently put itself up for sale and hired Goldman Sachs Group and Frank Quattrones Qatalyst Partners as advisers. It was thought that Chinese handset maker HTC might buy the company for its vast library of intellectual property, or perhaps Research in Motion would buy it to merge the webOS with its aging BlackBerry operating system.
UBS analyst Maynard Um, who has a $4 price target for Palm, said in a report on Monday that Palm may be attracting only "tepid" interest from potential buyers and the departure of Abbott makes things worse.
"We believe the timing of the resignation likely indicates that an acquisition is not pending and the retention actions reflect the challenges Palm is facing internally. We believe any potential acquirer would likely want (and need) the webOS development team," he wrote in a research note.
Analyst opinion on Palm is not entirely negative but it's getting there. Twenty analysts have a "hold" rating on the stock, two have a "buy" and one a "sell," according to Thomson/FirstCall, meaning they still think the company will be bought. At what price is the issue. The stock closed down 12 percent on Monday to $4.91. Analysts at Morgan Joseph & Co., Canaccord Adams and Berenberg Bank have all said the stock has no value.
Palm is seeking a buyer because its last ditch effort, the Pre and Pixi, went into a ditch. The Pre received a rousing welcome at the 2009 CES show but then Palm took too long to get to market, it partnered with the smallest of the major carriers, Sprint, which did little to market the phone, and Palm's own marketing for the Pre was widely derided as "creepy."
Palm has since expanded to Verizon Wireless and plans to sell through AT&T later this year. But it appears to have lost Radio Shack, a major reseller of Sprint products. Investment advisors CL King & Associates said in a research note that "In recent weeks RadioShack was offering both Palm models for free, probably in order to clear out inventory," he said. Now, Pre and Pixi phones are not available.
Calls to Radio Shack and Palm for comment were not returned.
Analyst Jack Gold, president of J.Gold Associates, said it's a bad situation overall for Palm.
"I hate to say this, but the prospects I see for Palm are not very good. They are a veteran and invented the smartphone category, but it's not very good," he told InternetNews.com. "Palm is in a vicious circle. On the one hand, it needs to kick up marketing, but if sales are going down how do you find money to kick up sales?"
When key execs start leaving, that's even less incentive for a potential buyer to come in, since someone like Abbott is "a pretty significant loss," Gold noted.
"I would guess that from a management strategy perspective, there's two ways to look at it. One is there are no potential buyers at least in the short term. The other way to look at it is they are looking to keep [executives] on board if there are serious buyers out there because your price will go down if the senior executives aren't there," he said.
TAGS:acquisition, Verizon, Palm, Sprint, HTC