Bloomberg News

Palm Shares Fall; Merrill Says Motorola Bid Unlikely

March 22, 2007

Palm Inc. fell for the first time in seven days after Merrill Lynch & Co. said Motorola Inc., which last night projected a quarterly loss, is unlikely to acquire the maker of the Treo e-mail device.

Motorola's ``warning and accelerated share-buyback makes it an unlikely bidder for Palm,'' wrote Merrill analysts including Vivek Arya. Merrill was the second major brokerage in as many days as to say Palm is unlikely to be bought.

Palm is scheduled to release its third-quarter results after the market close.

Yesterday, Schaumburg, Illinois-based Motorola said earnings and revenue this year will be ``substantially'' below its forecasts because of plunging mobile-phone prices.

Palm shares slid $1.71, or 8.8 percent, to $17.74 as of 4 p.m. in Nasdaq Stock Market trading. Motorola fell $1.24, or 6.6 percent, to $17.50.

``A lot of hot money has been piling into Palm thinking that an acquisition was going to be close,'' said David Nelson, who runs a hedge fund manages $29 million as chief executive officer of DC Nelson Asset Management in New York. ``Motorola would have been a good fit but it now has some serious issues before it can take on another acquisition,'' said Nelson.

Sunnyvale, California-based Palm is also losing market share to competitors, such as Research In Motion Ltd. (RIM), Apple Inc. (AAPL:US) and Samsung Electronics Co., adding uncertainty to any private equity bid or leveraged buyout, the Merrill analysts said. Carl Icahn, a shareholder in Motorola, may also thwart a bid, they said.

Yesterday, JPMorgan analysts said Palm is not likely to be acquired and may provide a fourth-quarter forecast below analyst estimates when it releases third-quarter results later today.

Palm Earnings

They expect Palm to forecast earnings of 12 cents a share on sales of $392.3 million, compared with the median estimate of 14 cents a share on sales of $421.1 million according to Bloomberg News projections. Analysts expect the company to earn 12 cents a share in the third quarter on sales of $408.2 million, according to Bloomberg data.

Before today's tumble, Palm shares gained 15 percent during a six-day rally, fueled by a report by technology Web site Unstrung.com on March 20 the company is close to finding a buyer. The company may fetch $20 a share, the site reported, citing unidentified people close to the situation. The Web site identified Nokia Oyj, the world's largest mobile-phone maker, as a potential bidder.

``The Nokia bid makes even less sense,'' Merrill analysts said in today's report, citing integration problems between the two companies and differences in their operating systems.

Even if Palm is bought, Merrill analysts said they do not expect ``any major premium'' to the company's share price.

Palm posted its first sales decline in three years in December after delaying the introduction of the latest Treo in the U.S., while customers snapped up rival products such as Research In Motion's BlackBerry.

-- With reporting by Ville Heiskanen in New York. Editor: Wan (crn).

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net

To contact the editor responsible for this story: Chris Nagi in New York at chrisnagi@bloomberg.net.


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