Violent Capitalist's Instablog

Is Seagate Buyout a Steal for Private Equity?

Fri, 15 Oct 2010 10:52:33 -0400

Seagate is cheap. It's a cyclical stock, one that is still mired in uncertainty due to the commodity nature of its business, the struggles with a fast growth competitor in Western Digital, a new CEO, the cyclicality of storage/hardware business, and now valuation since the whispers of a buyout offer. Nevertheless, it does mean that Seagate is worth only $16/share. And especially not to a consortium of private equity firms that can raise money at rates of 6% to buy the company out. If the new CEO (Luczo) is looking for a quick payout, I'd be extremely surprised that an ex-Sr Managing Director of Bear Stearns Technology Group and a tenured history at Seagate since 1993, will make him devoid of the true valuation of a company like Seagate.

First off, normalized earnings for a Seagate is about $1 billion. I've accounted for the fact that 2010 was stronger than usual and that they currently are not paying any taxes. Some #'s for my valuation:

D&A = $800mil
Capex = $625mil
OCF = $1.8 billion (my definition is NI + D&A)
FCF = $1.175 billion
Invested Capital = $3.05billion
Cash Flow ROIC = 39%

Cash = $2.5billion
Debt = $2.5billion

Market cap at $16 is $8billion. Since net debt is 0, the enterprise value for Seagate is also $8billion. FCF yield on a valuation of $8billion is 14.7%. That is nuts when you can borrow to buyout a firm at 6% interest rates! In my opinion, this yield should be about 10%, or a valuation of $11billion and $22/share. I also highlighted the ROIC #, mostly because its just insane for a hardware company. The thing is about hard drives, is that its now an oligopoly business run by a few dominant firms (Seagate, Western Digital the runaway leaders). This allows for lower capex investments - which is awesome for any LBO-er by the way - and creates this high ROIC #. If you want a comparison, take a look at semiconductor companies where there are a much larger # of firms competing. Routinely, their ROIC #'s come in at around 20-40% lower and they are probably more cyclical, yet have valuation multiples that are generally higher (Micron Technology would be an example of a lower ROIC operation with a similar valuation). It really makes no sense, and is why I bought into Seagate at prices of around $13/share.

Now the argument may be that the offer price for Seagate is fair because it matches the multiples of Western Digital. That's all fine and mighty - except Western Digital is cheap too. The buyout consortium has simply made them both equally attractive at Seagate's current price of $15/share.

My advice: hold firm for an offer above $20. At this price, buyout firms will still be able to make a 20-25% annualized return by my estimates.

Current price: $15
Conservative fair value: $22, 50% higher from current price
Strategy: Sell November puts at strike $14 for $.55, a yield of almost 4% in one month, or even buy shares outright for this one!

Disclosure: Long STX

F&C Asset Management Attracts Activist Investor

Tue, 17 Aug 2010 12:21:00 -0400

Sherborne Investors, currently in the controlling position of Nautilus here in the USA, has decided to also take aim at F&C Asset Management based in the UK. Nautilus has not really played out will for the firm, but here's why I think their focus on F&C should prove extremely worthy of their resources.

F&C Asset management is really a niche investment management company and is geographically diversified. They have about 100billion pounds under management and have offices in pretty much every major money center in the world.

At 63 pence, the market cap of the company stands at about 320mil pounds. 150mil in cash and 280mil in debt gives an enterprise value of about 420mil pounds.

The basic rule of thumb for investment management co's is using 2% of AUM (I have my own reservations about this valuation method in that they are firms that deserve premiums to this and discounts to it depending on their main order of business). 2% of 100bil = 500mil. If their EV should = 500mil, that means they should trade closer to 80 pence or about 25% higher.

They also have a book value of about 590mil, subtract out management contracts which are being amortized out and their book value is 390mil. If you think that market cap should trade close to book value, F&C should be worth about 78 pence, or about 24% higher.

My traditional valuation method is to take a multiple of EV against its free cash flows. Cash flows currently are about 5mil from income + amorization of contracts = 55mil and about 1.5mil being spent on capex. FCF is about 53 million. Taking a 10 multiple of this # and that gives an expected EV of 530mil, a target price of 85 pence or 35% higher.

Basically I don't think that its a coincidence that 3 different valuation methods are giving the such similar valuations! To throw an extra kicker in the mix, you also get dividends of 6 pence per year. The 30mil dividend payments is easily managed with 50mil+ FCF (please remember my FCF definition is different from the textbook version). The dividend yield is about 10%, so you can theoretically have total returns of at least 75% here in 5 years!

Current Price: 63 pence
Conservative Target Value: 80 pence
Expected Total Returns in 5 years: 75%+
Time Period: Approximately 4-5 years or sooner
Strategy: By shares close to 63 pence or lower - purchase 50% of a total allotment and be prepared to double down in the 50's.

Disclosure: I am long F&C Asset Management

KHD Post Spinoff Valuation is Dirt Cheap

Fri, 07 May 2010 09:26:40 -0400

Conservative Fair Value Estimate: 15 euro
Current Price: sub 6 euro
Strategy: Buy 2% allocation, double down at 5 with rising Euro volatility

All #'s below are Euro!

I obviously have developed a sort of fascination with Michael Smith and his portfolio co's - only because they are some of the best managed companies in terms of 1) efficiency 2) profitability 3) truly maximizing book value, not even to mention the management teams in place.

So, as most of us know by now, KHD has split itself into 2 entities, Terra Nova Royalty and KHD International (German exchange, symbol: KWG). My discussion here will be on the KHD part of the business. I believed previously this was the main attraction of the company and I still do today. I have previously written a valuation of the original KHD so please check that out if you can, as the explanation below is an update of that Article. One extremely important note of importance, is the fact that backlog now stands at about 200 million, with the company expecting nominal net income over the next 1-2 yrs.

Recap on Margins
In 2008 they incurred costs (directly related to progress billed or how much they charge for percentage of completion) of $170 million and earned nothing, I'm assuming this is because of cancellations and other charges they took on their income statement.. In 2007 they incurred costs of $390 million and about $100 million in profit, about a 25% earnings rate on billings.. Taking these into account, I believe that going forward they can earn 20% on future incurred costs

- Looking at their current operations I estimate $100 million in incurred costs per year

- Backlog is now 200 million, so the life of their backlog is 200mil/100mil which is 2 years. All my valuations will be projected based on 2 years (I won't discount them back to today)

- Take 20% of $100 mil for 2 years and that totals $40 million in additional book value from their backlog.

- With current book value at $170 million, book value is expected to be $210 million in 2 years

- I am disregarding any valuation from maintenance service contracts, so my minimum valuation for this company is now 210 million.

At this conjecture, KWG is trading at 5.75 euro. No doubt there is some volatility since the spinoff but this price is 100% absurd. At 5.75 and just under 16.5 million shares outstanding, gives it a market cap of 100 million euro. Against 226 million in net cash, Enterprise Value is a negative 120 million. At minimum shares should be trading at 10, where market cap would be on par with Book Value. Account for an additional 40 million in book value over the course of 2-3 years, and they should trade closer to 12-13 euro a share. Account for new orders to start flowing in 2011-2012 generating a positive 10 million in cash flows, and shares can hit upwards of 20.

For this reason I have sold my TTT and held on to KWG and plan on building that position.

Disclosure: Long KWG (german equity, listed on Frankfurt)

Relative Value Arbitrage Across the Pacific

Thu, 08 Apr 2010 16:08:49 -0400

Very few people are aware that the largest shareholder in WYNN is a Japanese company by the name of Universal Entertainment (previously known as Azure). These folks have been on my radar for a while as the relative value arbitrage here has been extremely volatile over the past 1-2 years. But since the spread is hard to follow at times, I came up with the chart below (It's not 100% accurate or absolutely perfect).

Universal, in its most recent earnings release, has stated that it owns about 24.55 million shares of WYNN, which equates to just over 20%. Many other reports would claim that they actually own 19.9%. The comparisions are obviously difficult to make here on historic owneship levels, especially with WYNN being a regular diluter of capital. BUT the story is one the same. On the chart below, I simply assumed (perhaps incorrectly) that they owned a 19.9% stake since 2005. Regardless the data is compelling for a relative value arbitrage investment.

Some background on WYNN and Universal...

WYNN is a developer/operator of high end casinos, managing to do so with less levels of debt than some of its peers. WYNN's owner has been in the news for 1) destroying a Picasso 2) an expensive divorce 3) lavish lifestyle and 4) lavish corporate expenditures. This company's motto is the modern day equivalent of supply-side Reaganomics. Spend and others will spend more...?

That's not to say its a bad company, or that profits won't return. I would just argue that it is a higher beta stock than what the industry has been used to in the past. Universal Entertainment on the other hand is a much more fiscally conservative corporation. Whereas WYNN trades at multiples of 20+, Universal's projected multiples are under 10. Before the investment in WYNN, Universal's main order of business was Pachinko machines. They are 'gambling-like games' that can be played via various outlets in Japan. This business has been slow and somewhat declining but in stable environments provides some cash flow. I'll just consider its worth nothing for simplicity. What is slightly more important, is that the company is holding a net cash position of about 4billion Yen.

The relationship between Universal and WYNN, allows Universal to gain some inroads to some key relationships in building their own business outside of Japan and outside of their investment in WYNN. It has been pretty much a failure to date, but with the growth of Asia and the popularity of Pachinko in the region, there is some potential for this business. At some point however, it will probably make sense for Universal CEO Okada to divest the Pachinko business and merge his shares back into WYNN (he is also Vice Chairman of WYNN). I figure the Pachinko business is at best worth 20-30% of the WYNN investment. And if it reverses course later in the year returning to a negative cash flow producing entity, it just makes no sense to hold onto it! The result of a divestiture, will allow current investors in Universal to realize the full book value, of course the main deterrent is that Okada will likely lose his stature slightly as he may lose the title of largest shareholder of WYNN. He owns about 35% of Universal, there is another two Okada's that own another 36%.

The tax story in Japan is also weird. They have a ~1% tax for some types of capital gains and than upwards of 20% taxes for other types of capital gains. I just assume they'll be taxed at 20% if they ever sold their WYNN shares, so I discounted WYNN's market capitalization by that amount.

The chart:

ps. 24.55 million shares per 80 million shares of Universal = .307 ratio
(short .307 shares of WYNN for every Universal share long)

pss. currency effects are nominal at the end of the day since the underlying asset is in $ in both instances!

psss. I cannot do this trade because I can't trade companies listed on the JASDAQ

Univ Ent	Price	shares	Market Value	Yen/$	$ Market Value	WYNN	Close	shares out	Market Cap	19.9% stake	20% tax	Premium
Apr-2010	1,469.00	80,000,000	117,520,000,000	93.08	1,262,569,832		86.00	120,189,996	10,336,339,656	2,056,931,592	1,645,545,273	30.33%
Mar-2010	1,360.00	80,000,000	108,800,000,000	93.42	1,164,632,841		75.83	120,189,997	9,114,007,473	1,813,687,487	1,450,949,990	24.58%
Feb-2010	1,154.00	80,000,000	92,320,000,000	89.11	1,036,022,893		63.57	120,189,998	7,640,478,173	1,520,455,156	1,216,364,125	17.41%
Jan-2010	1,123.00	80,000,000	89,840,000,000	90.33	994,575,446		61.88	120,189,999	7,437,357,138	1,480,034,070	1,184,027,256	19.05%
Dec-2009	1,152.00	80,000,000	92,160,000,000	92.43	997,078,870		58.23	120,190,000	6,998,663,700	1,392,734,076	1,114,187,261	11.75%
Nov-2009	1,196.00	80,000,000	95,680,000,000	86.38	1,107,663,811		64.54	120,190,001	7,757,062,665	1,543,655,470	1,234,924,376	11.49%
Oct-2009	1,210.00	80,000,000	96,800,000,000	90.99	1,063,853,171		54.22	120,190,002	6,516,701,908	1,296,823,680	1,037,458,944	-2.48%
Sep-2009	1,469.00	80,000,000	117,520,000,000	89.51	1,312,925,930		70.89	122,610,000	8,691,822,900	1,729,672,757	1,383,738,206	5.39%
Aug-2009	1,074.00	80,000,000	85,920,000,000	93.26	921,295,303		54.13	122,610,001	6,636,879,354	1,320,738,991	1,056,591,193	14.69%
Jul-2009	750.00	80,000,000	60,000,000,000	95.72	626,828,249		51.17	122,610,002	6,273,953,802	1,248,516,807	998,813,445	59.34%
Jun-2009	738.00	80,000,000	59,040,000,000	95.87	615,833,942		35.30	122,386,000	4,320,225,800	859,724,934	687,779,947	11.68%
May-2009	858.00	80,000,000	68,640,000,000	95.91	715,670,942		37.06	122,386,001	4,535,625,197	902,589,414	722,071,531	0.89%
Apr-2009	816.00	80,000,000	65,280,000,000	98.18	664,901,202		39.23	122,386,002	4,801,202,858	955,439,369	764,351,495	14.96%
Mar-2009	485.00	80,000,000	38,800,000,000	98.56	393,668,831		19.97	112,568,000	2,247,982,960	447,348,609	357,878,887	-9.09%
Feb-2009	525.00	80,000,000	42,000,000,000	97.46	430,946,029		20.95	112,568,001	2,358,299,621	469,301,625	375,441,300	-12.88%
Jan-2009	774.00	80,000,000	61,920,000,000	89.72	690,147,124		30.08	112,568,002	3,386,045,500	673,823,055	539,058,444	-21.89%
Dec-2008	898.00	80,000,000	71,840,000,000	90.79	791,276,572		42.26	109,440,000	4,624,934,400	920,361,946	736,289,556	-6.95%
Nov-2008	903.00	80,000,000	72,240,000,000	95.46	756,756,757		39.82	109,440,001	4,357,900,840	867,222,267	693,777,814	-8.32%
Oct-2008	873.00	80,000,000	69,840,000,000	97.47	716,528,163		60.40	109,440,002	6,610,176,121	1,315,425,048	1,052,340,038	46.87%
Sep-2008	2,265.00	80,000,000	181,200,000,000	106	1,709,433,962		81.64	104,270,000	8,512,602,800	1,694,007,957	1,355,206,366	-20.72%
Aug-2008	2,835.00	80,000,000	226,800,000,000	109.55	2,070,287,540		95.42	104,270,001	9,949,443,495	1,979,939,256	1,583,951,404	-23.49%
Jul-2008	2,915.00	80,000,000	233,200,000,000	108.1	2,157,261,795		97.48	104,270,002	10,164,239,795	2,022,683,719	1,618,146,975	-24.99%
Jun-2008	3,150.00	80,000,000	252,000,000,000	106.17	2,373,551,851		81.35	112,365,000	9,140,892,750	1,819,037,657	1,455,230,126	-38.69%
May-2008	3,450.00	80,000,000	276,000,000,000	105.46	2,617,106,012		100.03	112,365,001	11,239,871,050	2,236,734,339	1,789,387,471	-31.63%
Apr-2008	3,820.00	80,000,000	305,600,000,000	104.53	2,923,562,614		105.34	112,365,002	11,836,529,311	2,355,469,333	1,884,375,466	-35.55%
Mar-2008	3,080.00	80,000,000	246,400,000,000	99.85	2,467,701,552		100.64	113,648,000	11,437,534,720	2,276,069,409	1,820,855,527	-26.21%
Feb-2008	3,370.00	80,000,000	269,600,000,000	104.19	2,587,580,382		100.70	113,648,001	11,444,353,701	2,277,426,386	1,821,941,109	-29.59%
Jan-2008	3,430.00	80,000,000	274,400,000,000	106.74	2,570,732,621		114.98	113,648,002	13,067,247,270	2,600,382,207	2,080,305,765	-19.08%
Dec-2007	4,240.00	80,000,000	339,200,000,000	111.71	3,036,433,623		112.13	112,690,000	12,635,929,700	2,514,550,010	2,011,640,008	-33.75%
Nov-2007	4,100.00	80,000,000	328,000,000,000	111.02	2,954,422,627		126.94	112,690,001	14,304,868,727	2,846,668,877	2,277,335,101	-22.92%
Oct-2007	4,950.00	80,000,000	396,000,000,000	115.27	3,435,412,510		161.43	112,690,002	18,191,547,023	3,620,117,858	2,896,094,286	-15.70%
Sep-2007	5,120.00	80,000,000	409,600,000,000	115	3,561,739,130		157.56	110,881,000	17,470,410,360	3,476,611,662	2,781,289,329	-21.91%
Aug-2007	4,300.00	80,000,000	344,000,000,000	115.83	2,969,869,637		123.73	110,881,001	13,719,306,254	2,730,141,944	2,184,113,556	-26.46%
Jul-2007	3,790.00	80,000,000	303,200,000,000	119.13	2,545,118,778		96.56	110,881,002	10,706,669,553	2,130,627,241	1,704,501,793	-33.03%
Jun-2007	3,830.00	80,000,000	306,400,000,000	123.39	2,483,183,402		89.65	112,111,000	10,050,751,150	2,000,099,479	1,600,079,583	-35.56%
May-2007	4,000.00	80,000,000	320,000,000,000	121.76	2,628,120,894		96.50	112,111,001	10,818,711,597	2,152,923,608	1,722,338,886	-34.47%
Apr-2007	4,270.00	80,000,000	341,600,000,000	119.44	2,860,013,396		102.21	112,111,002	11,458,865,514	2,280,314,237	1,824,251,390	-36.22%
Mar-2007	4,110.00	80,000,000	328,800,000,000	117.56	2,796,869,684		94.86	112,348,000	10,657,331,280	2,120,808,925	1,696,647,140	-39.34%
Feb-2007	3,430.00	80,000,000	274,400,000,000	118.33	2,318,938,562		98.02	112,348,001	11,012,351,058	2,191,457,861	1,753,166,288	-24.40%
Jan-2007	3,930.00	80,000,000	314,400,000,000	121.02	2,597,917,700		111.74	112,348,002	12,553,765,743	2,498,199,383	1,998,559,506	-23.07%
Dec-2006	3,420.00	80,000,000	273,600,000,000	119.02	2,298,773,315		93.85	111,630,000	10,476,475,500	2,084,818,625	1,667,854,900	-27.45%
Nov-2006	2,995.00	80,000,000	239,600,000,000	115.55	2,073,561,229		87.85	111,630,001	9,806,695,588	1,951,532,422	1,561,225,938	-24.71%
Oct-2006	2,430.00	80,000,000	194,400,000,000	116.82	1,664,098,613		73.54	111,630,002	8,209,270,347	1,633,644,799	1,306,915,839	-21.46%
Sep-2006	2,200.00	80,000,000	176,000,000,000	118	1,491,525,424		68.01	111,702,000	7,596,853,020	1,511,773,751	1,209,419,001	-18.91%
Aug-2006	2,540.00	80,000,000	203,200,000,000	117.35	1,731,572,220		77.41	111,702,001	8,646,851,897	1,720,723,528	1,376,578,822	-20.50%
Jul-2006	2,140.00	80,000,000	171,200,000,000	114.44	1,495,980,426		64.01	111,702,002	7,150,045,148	1,422,858,984	1,138,287,188	-23.91%
Jun-2006	2,490.00	80,000,000	199,200,000,000	114.51	1,739,586,062		73.30	99,830,000	7,317,539,000	1,456,190,261	1,164,952,209	-33.03%
May-2006	2,540.00	80,000,000	203,200,000,000	112.26	1,810,083,734		71.20	99,830,001	7,107,896,071	1,414,471,318	1,131,577,055	-37.48%
Apr-2006	2,785.00	80,000,000	222,800,000,000	113.79	1,957,992,794		76.11	99,830,002	7,598,061,452	1,512,014,229	1,209,611,383	-38.22%
Mar-2006	2,700.00	80,000,000	216,000,000,000	117.48	1,838,610,827		76.85	98,736,000	7,587,861,600	1,509,984,458	1,207,987,567	-34.30%
Feb-2006	2,300.00	80,000,000	184,000,000,000	115.82	1,588,672,077		66.45	98,736,001	6,561,007,266	1,305,640,446	1,044,512,357	-34.25%
Jan-2006	2,385.00	80,000,000	190,800,000,000	116.88	1,632,443,532		64.58	98,736,002	6,376,371,009	1,268,897,831	1,015,118,265	-37.82%
Dec-2005	2,425.00	80,000,000	194,000,000,000	117.88	1,645,741,432		54.85	98,310,000	5,392,303,500	1,073,068,397	858,454,717	-47.84%
Nov-2005	2,390.00	80,000,000	191,200,000,000	119.66	1,597,860,605		55.83	98,310,001	5,488,647,356	1,092,240,824	873,792,659	-45.31%
Oct-2005	2,100.00	80,000,000	168,000,000,000	116.36	1,443,795,119		46.63	98,310,002	4,584,195,393	912,254,883	729,803,907	-49.45%
Sep-2005	1,835.00	80,000,000	146,800,000,000	113.29	1,295,789,567		45.15	98,472,000	4,446,010,800	884,756,149	707,804,919	-45.38%
Aug-2005	2,080.00	80,000,000	166,400,000,000	110.84	1,501,263,082		47.72	98,472,001	4,699,083,888	935,117,694	748,094,155	-50.17%
Jul-2005	2,335.00	80,000,000	186,800,000,000	112.25	1,664,142,539		56.30	98,472,002	5,543,973,713	1,103,250,769	882,600,615	-46.96%
Jun-2005	2,345.00	80,000,000	187,600,000,000	110.91	1,691,461,545		47.27	98,203,000	4,642,055,810	923,769,106	739,015,285	-56.31%
May-2005	2,360.00	80,000,000	188,800,000,000	107.97	1,748,633,880		46.85	98,203,001	4,600,810,597	915,561,309	732,449,047	-58.11%
Apr-2005	2,340.00	80,000,000	187,200,000,000	104.64	1,788,990,826		52.94	98,203,002	5,198,866,926	1,034,574,518	827,659,615	-53.74%

Disclosure: No positions in the above stocks

Can Palm Survive?

Fri, 22 Jan 2010 11:22:55 -0500

Now that the company has been making a slight recovery... I believe its time to reiterate why this company does not deserve its current valuation.

To begin the pointers from my last instablog:

- they are a 1 product company
- are steps behind the competition in every respect
- financially weak mid-cap company
- can't compete on the R&D scale of large caps
- only partnership is with Sprint
- a competitor would rather poach the personnel than buy the company whole

Well, all in all, they are now a 2 product company - Pre and Pixi. And have added one other carrier, Verizon. BUT everything else is the same. AND Pixi is a relative failure given the dramatic price cuts that product has seen (not even to mention the Pre's dramatic price cuts as well).

So I belive everything pretty much holds the same. Remember there isn't much risk for a mobile carrier to add a Palm phone to their lineup, especially if terms are in their favor to do so (more choices, more opportunities to sign a customer). Admittedly, the launch of Pre did make me nervous... it was a semi-successful launch - one that generated some interest in the brand but fell short of actually making the company a sustainable enterprise.

Why is it so tough for Palm to succeed? Simply because of the entrenched competition. Entrenched relationships with their carriers, consumers, and R&D departments leave little room for error for the handset sector's "little engine that could." Despite the positive reviews of the Pre, how many were willing to gamble that they wouldn't have to switch back to a Apple/Blackberry/Motorola/Nokia phone once they renewed their contract and/or sought a new phone??

Not me.. Not a large percentage of us because the switching costs are high for mobile phone users, and in particular for smart phone users. So now comes around product #2, and they fall harder than the first time around. This is now a major problem. Even analysts now concede the the best hope for Palm is some sort of M&A transaction, hoping that someone would bite on their software... really??

Well what about the software side? Palm competes with Apple, Blackberry, Google, Symbian, and Microsoft. Of the 5, 4 are also marketing their own exclusive hardware (Apple, Blackberry, Nokia-Symbian, and Google). Microsoft is purely licensing their mobile OS systems. Google and Symbian also license out their software, remember Symbian is owned by Nokia. A breakdown of the market share is here.

Now some folks may say that a 3% market share ain't too bad against Google. Do you reallyyyyy want to bet against Google?? Just how many firms can survive in this space?? For PC's we have 3 competitive operating systems: Microsoft, Apple, and Linux. And Linux was built on open source - FREE open source software. That is what Google's Android platform is akin to!

Couple all of this with the fact that Palm also:

- faces losses
- has negative book value
- is issuing stock (please will someone decipher the "series C derivatives"???)

By all means its your money to gamble with...

Disclosure: short PALM

PALM or NAPALM?

Mon, 13 Jul 2009 16:40:00 -0400

The trajectory on this stock is pretty stupid, they are a 1 product company - a 1 product company that is steps behind the competition in every respect, to think that a financially weak mid-cap company can compete on the R&D scale of large caps without the weak balance sheet is just plain stupid.

If your long PALM I hope your praying each day that their partnership with Sprint.... pause as I chuckle...will actually amount to anything in the long-term. Short-term both companies are positioned poorly, but I'd rather invest in Sprint as a turnaround/buyout story than PALM.

Sprint...if the PRE was so awesome it will be offered by at least one other carrier by now.

Fact is that no one major, profitable, financially-well-to-do carrier really gives two cents about PALM, simply because all the other carriers have already developed working relationships with the larger players that will be sticking around for much longer - Apple, Blackberry, Samsung, Google, HTC, and whoever else is out there. It's just a matter of time they'll realize that PRE was a one-hit, hard-to-follow up product for a financially disastrously positioned company.

Not to mention their $190 mil in goodwill (probably worth what is in my toilet), actually makes their book value at -$600mil. Iphone margins are reportedly at about 20+%, good luck to you palm on beating that #, cuz without it your dead water (their current margins are 20%+). Who wants to bet that the other carriers will only give them a sub 25% (I'm being coy) cut to protect their working relationships with the larger handset players?

Talk of a buyout offer? Seriously? With all this info what kind of idiot buyer will take on this company? For all its losses and negative book value, a potential acquirer is better off just making an initial investment of their own by stealing the 2-3 employees that probably made the PRE work ($20 bucks Motorola is already on it).

I wonder if it would be considered insider trading to short $200 million of PALM and offer Rubenstein $25 million 1 yr contract to sit at home...$$$

Disclosure: I am currently short PALM stock, possibly selling more call options (another short position)