Palm hires advisers, explores options: source

Jon Rubinstein, chairman and chief executive of Palm, speaks in front of images of the new palm Pre Plus (L) and Palm Pixi Plus during a news conference at the 2010 CES in Las Vegas, January 7, 2010.

NEW YORK (Reuters) - Palm Inc PALM.O has hired bankers to explore several options, including a sale of the company, whose smartphones sales have suffered badly against rivals like the iPhone and Blackberry.

Palm, whose shares jumped more than 20 percent Monday, is working with Goldman Sachs Group Inc (GS.N) and investment banker Frank Quattrone's Qatalyst Partners, according to a source, who spoke on the condition of anonymity because the process has not been made public.

Alternatives include the pursuit of additional capital investment or an attempt to reach a licensing agreement for its WebOS phone operating system software, the source said.

News that Palm had hired Goldman and Qatalyst was first reported by Bloomberg, and followed several days last week when the company's stock swung wildly on takeover rumors.

Suitors would likely pay more than $1 billion for Palm, given its market value of $870 million as of Friday's close, and the average deal premium of 30 percent for a technology company, bankers said. The buyer would face additional integration costs.

Still, the price tag will likely be far lower than what Palm would have fetched last year, following the introduction of its Pre phone. In the past six months, the money-losing company's stock has tumbled 69 percent, and its market capitalization has tumbled from about $2.4 billion.

At the moment Elevation Partners, the private equity firm that includes U2 lead singer Bono among its partners, controls roughly 30 percent of Palm.

Spokespeople from Palm in Europe, Goldman Sachs and Elevation each declined to comment. Spokespeople for Palm in the U.S. and Qatalyst did not immediately return calls for comment.

For years, the company was considered a target for larger companies hoping to enter or expand in the mobile market. Analysts say its most valuable asset is the WebOS operating system, which yielded rave reviews but lackluster sales.

Palm shipped a total of 960,000 smartphones in the February quarter, but only 408,000 of those were sold to consumers.

Speculation about a sale of Palm has swelled, as sales of its Pre and Pixi handsets flag amid concerns that it cannot compete against Research in Motions' (RIM.TO) Blackberry, Apple Inc's (AAPL.O) iPhone and phones powered by software made by Microsoft (MSFT.O) and Google (GOOG.O).

"Palm's limited scale, distribution and weak global brand outside the United States all point to a takeover as the next chapter in the Palm story," said CCS Insight analyst Geoff Blaber.

"The company has developed a highly valuable asset in WebOS. The challenge for Palm is finding a buyer prepared to pay a premium for an immature platform when many potential suitors have already invested heavily in Android," Blaber added.

Analyst Lawrence Harris of CL King & Associates noted that the recent disappointing debut of Palm's Verizon phone, after being exclusively sold by Sprint (S.N), and pending improvement to the iPhone <ID:N08199547> and Microsoft's phones <ID:N07129916>, may have spurred Palm to act.

"Given where we are at, it's as a good a time as any, because I just don't see an immediate turnaround," he said.

HTC Corp (2498.TW), the world's No. 5 smartphone maker, had "opened discussions about an intent to acquire" Palm, Taiwan's Economic Daily News reported on Friday. Earlier in the week, rumors circulated about a potential bid from Lenovo Group <0992.

Technology companies Dell Inc (DELL.O) and Microsoft Corp (MSFT.O), and handset manufacturer Nokia (NOK1V.HE) and Motorola Inc MOT.N have all been named in the past as potential suitors.

(Additional reporting by Tarmo Virki in Helsinki, Sakthi Prasad in Bangalore and Victoria Howley in London; editing by Karen Foster and Derek Caney)