Palm Inc., creator of the Pre smartphone, is unlikely to find a buyer at its current stock price, said analysts from UBS AG and Morgan Keegan & Co. The shares dropped 12 percent.
Palm put itself up for sale and hired Goldman Sachs Group Inc. and Frank Quattrone’s Qatalyst Partners as advisers, three people familiar with the matter said April 12. Within days, the company adopted a compensation program for key employees and said Senior Vice President Michael Abbott resigned.
“These are not activities that inspire confidence about Palm’s ability or willingness to sell out at a premium valuation in the near term,” Morgan Keegan analyst Tavis McCourt said today in a report. He cut the shares to “underperform” from “market perform.”
Of 19 analysts with price estimates on Palm, 17 say it’s worth less than the April 16 closing price of $5.59, according to Bloomberg data. Analysts at Morgan Joseph & Co., Canaccord Adams and Berenberg Bank say the stock has no value. The longer it takes for a buyer to emerge, the more the price will fall as the company spends cash and struggles to compete with Apple Inc.’s iPhone and Google Inc.’s Android software, said Matthew Thornton, an analyst at Avian Securities LLC in Boston.
“This is a depreciating asset,” said Thornton, who has a “neutral” rating and share price estimate of $3.25. “Unless they’re able to somehow create a real bidding war, which I don’t see brewing, this can drag out and anyone who has interest can sit back and wait.”
Dearth of Bidders
UBS analyst Maynard Um, who has a $4 price forecast, said in a report today that Sunnyvale, California-based Palm may be attracting only “tepid” interest from potential buyers. Lynn Fox, a Palm spokeswoman, declined to comment.
Palm fell 67 cents to $4.92 at 4 p.m. New York time on the Nasdaq Stock Market. The shares have lost 51 percent this year.
Palm is seeking a buyer after sales of the Pre and Pixi sputtered. The devices, which run a new operating system called WebOS, were introduced in 2009 on Sprint Nextel Corp.’s network. Verizon Wireless began selling enhanced versions of the Pre and Pixi in January. Disappointing sales at Verizon Wireless led Palm to issue revenue forecasts that trailed analysts’ estimates in February and again in March.
Abbott, the executive who resigned, was a lead developer of WebOS, which was created by Chief Executive Officer Jonathan Rubinstein to revive Palm. CL King & Associates analyst Lawrence Harris said in a report today he’s concerned about the departure because WebOS is “one of the company’s few remaining assets.”
In its retention program announced last week, Palm said Senior Vice President Jeffrey Devine and Chief Financial Officer Douglas Jeffries received cash bonuses of $250,000 and restricted stock. The awards will be earned over a two-year period. They “reflect the challenges Palm is facing internally,” UBS’s Um said in his report.
The Pre and Pixi couldn’t be purchased through the Web site of RadioShack Corp., the second-largest U.S. electronics chain, as of early today. CL King’s Harris said he visited multiple RadioShack stores in the New York area over the weekend and most were no longer carrying the devices. RadioShack has sold the phones with Sprint contracts.
RadioShack is making space for two new devices that will work on the Sprint network, said Sprint spokeswoman Michelle Mermelstein. One of the devices is a Research In Motion Ltd. BlackBerry and the other specializes in messaging, she said.
“For competitive reasons, we don’t normally discuss details about inventory and distribution of specific devices,” RadioShack spokesman Eric Bruner said in an interview. “Palm has been a good partner in our growing mobility business and we expect that relationship to continue.”
Verizon Wireless and AT&T Inc. said their plans for Palm were in place. “We’re still full force ahead in terms of Palm devices,” said Marquett Smith, a spokesman for Verizon Wireless, owned by Verizon Communications Inc. and Vodafone Group Plc of the U.K.
AT&T is sticking to a plan to begin carrying Palm phones this year, said company spokesman Mark Siegel. “We have announced the Pre Plus and the Pixi Plus,” said Siegel, a spokesman for the Dallas-based company. “We didn’t give specific dates but plans are on track.”
Morgan Joseph analyst Ilya Grozovsky has a $0 price estimate on Palm because he expects common shareholders to be wiped out in a deal. The first $767 million will go to pay off the company’s $400 million in debt and the convertible preferred shares held by Elevation Partners LP, Palm’s biggest investor, Grozovsky said.
That assumes the company depletes most of its $592 million in cash and short-term investments before a deal is completed. Grozovsky said he expects the company to spend $250 million of its cash by the end of August.
“Their asset is dwindling, cash is dwindling, units aren’t selling and it’s only going to get worse,” he said.