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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.

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Source: Will Dell Buy Palm?