Will Dell Buy Palm?

The hot speculation du jour is that Dell (DELL) will end up buying Palm (PALM).

It’s not hard to see why people might think so. Dell has cash, has done few acquisitions to date, and has promised to get more aggressive on the M&A front. It has no current play in the smart phone business, one of the few areas of consumer tech showing substantial growth. And Palm, meanwhile, has a hot new product with the Pre and an impressive piece of software in its WebOS platform. It also is hurting for cash. Collins Stewart analyst Ashok Kumar writes in a note this morning that such a combination “will be born of mutual necessity” and would be a strategic fit for both parties. He notes that Dell’s initial efforts at developing a smart phone on its own “have been met with a resounding yawn by the carriers.”

And here’s another aspect of a potential deal that he fails to mention: Newly installed Palm CEO Jon Rubinstein would provide Dell with an instant successor to Michael Dell, allowing him to move out of his current operating role and back to the chairman’s job. An ex-Apple exec at the helm of Dell is an intriguing idea, no?

Palm has a market cap of about $1.9 billion; back out $260 million in cash, add back $390 million in debt, and you get an enterprise value of about $2 billion. Tack on a nice healthy premium, and you get a take out value of around $3 billion. Dell has $7.7 billion in net cash, so they could do a deal without having to raise any new capital. (In fact, the company this week sold $1 billion in new debt, adding cash to its war chest.)

On the other hand, Dell’s cash pile and its lack of presence in the cell phone market has triggered other rumors that haven’t come to fruition; for months there was talk that it might buy Motorola’s (MOT) handset business - and so far, of course, that hasn’t happened.

PALM Friday is up 19 cents, or 1.4%, to $13.62.

Original post

Comments

[Economyst:]

Savitz I suggest you do some research. This is the same Analyst Ashok kumar who said Palm would have trouble with Pre supplies - serious trouble which did not materialise.

www.ubergizmo.com/15/a...

The same guy who said sell Apple.

www.marketrap.com/over...

He is not highly rated at all.

So he first makes a call regarding serious downside for Palm a month ago and then makes some speculation regards Dell buying Palm. It might be pure coincidence but you best get some confirmation from him he has no position on Palm.

Jun 12 12:06 PM

[Hayweed:]

This deal smacks of desperation on Dell's part since they are now just a generic PC box maker and want in on phones. Palm is probably going out of business next year. The Pre while interesting is mostly hype to get a buy out for palm. They only sold about 50,000 phones at launch. Why? does Palm not have the cash to make more or did they do this to creat hype.

Dumb move of the year was jumping the gun and releasing the phone a week before Apple's WWDC. Apple comes out with a new OS, better phone and then drops the 3G to $99 versus Palms $299 - $100 rebate. 50,000 apps to 18 apps.

Dell please buy Palm so you are further distracted from computers.

Think about this, if Dell went out of business next week would anyone be that upset. You could still buy a generic PC from HP or Acer or any of the other computer makers.

No value add = no future. See ya Dell

Jun 12 06:42 PM

[Yagottabe K...:]

> ...Palm has a market cap of about $1.9 billion; back out $260 million
> in cash, add back $390 million in debt, and you get an enterprise
> value of about $2 billion...

I am shocked that YOU continue to spout this nonsense - at least YOU have some history reporting on Palm and should be intimately familiar with it, its common shares, and its preferred shares that convert to common.

Try 200+ million shares at $13+/share to start, add in that $400 million in debt, add in a buyout premium (oh yeah...that) THEN see what it would cost for any company to acquire Palm for an unproven Operating System and unproven phone.

Good grief.

Why are you still posting stuff like this?

Jun 13 08:38 AM

[Louie Junior:]

If Dell wants to buy Palm, why not wait 6 months and pay one-third today's price.

Better yet, Dell could save a billion and hire Rubinstein after the smoke clears.

Jun 13 06:34 PM