Palm, Inc. (NASDAQ:PALM.DL)

CAPS Rating: No stars

The Company develops, markets and sells a family of mobile computing solutions.

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Player Avatar TSIF (99.96) Submitted: 4/11/2010 6:09:00 PM : Outperform Start Price: $4.63 PALM.DL Score: +27.15

It's been no secret that Palm has been on my short list of potential Bankruptcy candidates for over a year. Fan club loyalty will not save a company that is a one trick pony and always a generation behind. The ride up from a $1.50 to $18 caught me off guard, but the drop back down to $4 did not.

HOWEVER, Bankruptcy is highly overrated.
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It will ONLY occur if the investors feel that LOSSES will continue. Investors might be fearful that PALM will eat through the $600 Million they have in Cash. In many cases a company is more valuable to investors alive than dead. In the case of Palm, however, the $600 Million they have in the bank in cash doesn't cover their debt and accounts payable. While it could be "lost' over time, the company's book value is already negative. A BILLION In Revenue a year is a lot of money, too bad PALM loses $200 Million on that. Other companies may see it as an opportunity.

The news from multiple sources that PALM may be a a buyout candidate generates an arbitrage play. Some would contend that PALM isn't worth as much as they owe, but value is in the eyes of the purchaser. Palm has a broad, if unprofitable, US prescense and base. International companies being speculated on can value that in many ways.

Rumors can generate huge share price spikes that fade just as quickly. My take on Palm, since the news was not denied, is that a takeover could be plausible. Large investors have accumulated shares at a variety of price ranges, and I see $7-$9 as being an acceptable range.

My other play is that there is over a 40% short interest on Palm. What will happen if the price stays even slightly upward pressured as these come due? Shorts will need to cover.

All in all, arbitrage plays are not for the faint of heart. I'm backing this one with real life Calls. I don't recommend chasing this one much higher.

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Member Avatar Mstinterestinman (20.58) Submitted: 4/14/2010 6:07:10 PM
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I will admit that the possibility is tempting but if you look at fundamentals and the cash burn rate if a buyout happens I doubt it will be at a premium. I would take my 40% profit and run if I were you just my opinion worth exactly what I am charging..lol

Member Avatar TSIF (99.96) Submitted: 4/15/2010 6:14:06 PM
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I had considered running the last two days, but my puts are good for several months. I agree the premium won't be where most would "like" or expect it to be. I was on the trigger until I noted that Harbinger, a fairly decent Hedge Fund ponied up for a 9.5% stake, suggesting the premium is at least a little above where it is now. That at least one company was out of the bidding indicates that the bidding is now above the price it was at when they were first approached. I certainly wouldn't buy more at this price, but my entry was at the very beginning of the rumor. More than likely I'll sell at least half of my position very soon. Good advice, I'll pay you double what you think it's worth........ :)

Member Avatar kpscott (89.61) Submitted: 4/19/2010 6:58:47 PM
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Has your opinion changed now that Radio Shack has bailed as a distributor?

Member Avatar TSIF (99.96) Submitted: 4/20/2010 5:35:35 PM
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The Radio Shack issue needs to be taken in context. My interpretation is that it only has to do with Sprint Contracts, not carrying them completely. Radio Shack only recently began selling non-contract Palms. Definitely another smack to Palm as is the risk of losing key executives. Regardless, it wouldn't change my opinion in a buyout scenerio. In a scenerio of Palm going it alone, I was negaitive on that already.

In a buyout scenerio, the value is in their OS, engineering, and brand recognition. The international companies mentioned as suitors have low cost manufacturing facilities that can help. A current distributor adding to Palm's woes doesn't appear to me to impact any buyout talks going on. It would be prudent of distributors to have a fall back plan. I'm a little surprised at Radio Shack since they claim to have ALL the phones on the planet. Their commercials showing a phone being plucked form a cow will now be udderly uncreditable if they drop Palm completely.

All in all, I think any premium and likelihood of a buyout fades each passing day. Suitors might be content to try to hold for Palm to have to sell off assets in bankruptcy. Of course if there are more than one interested parties, someone would probably "blink" before then, or at least buy enough shares to have some skin in the end game.

All in all, I never thought the preimium, if the buyout rumors were/are true would be very high. I perked up around $4. I wouldnt' be as interested around $5 per share. I may close this call and my options on any forays above $5. I still think $6-7 is likely IF a buyout occurs, but the risk is just as high that it won't.

Member Avatar DepthCharge500 (< 20) Submitted: 4/23/2010 2:15:36 PM
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Hey, I think bankruptcy is impossible for Palm. Why? Because they're too valuable if you consider that they're a real competitor for Apple and that they don't need to "own" the market to be a huge success. With better marketing and distribution both here and in Europe (just as you mentioned) they could easily turn a nice profit. I'm actually shocked that noone has stepped forward to buy them yet. My take last year was that acquiring companies were just waiting for the share price to drop into a certain range.

Member Avatar TSIF (99.96) Submitted: 4/28/2010 5:25:24 PM
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Yes, apparently there were several interested parties for the OS and brand recognition.
HPQ has purchased them for about $5.80 per share depending on how the debt calcuations all settle. I was expecting the $6 to $7 with a marekt cap of $1.2 Billion. Not a great RUN considering a buyout, but a reasonable premium since it ws suggested that they would go bankrupt and were worthless.
Congrats to anyone who popped in below this level.

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