* HTC not bidding for Palm after reviewing its
* Lenovo shares surge to 23-month high
* Lenovo had over $2.4 billion in net cash at end-2009
* Palm could potentially fetch $1.3 billion
(Recasts, adds details throughout)
By Kelvin Soh
HONG KONG, April 23 Lenovo (0992.HK), the
world's No.4 PC brand, has emerged as the leading candidate to
buy struggling smartphone maker Palm PALM.O, after the U.S.
firm was rebuffed by other potential Asian buyers, sources
Shares of Hong Kong-listed Lenovo rose as much as 5.9
percent percent to a 23-month high on Friday, helped by
expectations of strong growth in the sector and speculation
that it could bid for the U.S. company once considered a
pioneer in the smartphone space.
"A most suitable candidate will be a mainland Chinese
company," said Lu Chialin, an analyst at Macquarie Securities
in Taipei. "They've got a lot more free cash and don't have the
brand presence in the United States, so that will all give them
that boost they need."
Investment banking sources said they had heard that Lenovo
is looking into a possible bid for Palm, but did not have any
HTC (2498.TW), the world's No. 5 smartphone brand and one
name associated with a possible offer, was approached about
making a bid but decided to pass after reviewing Palm's books,
a source with direct knowledge of the situation said.
"There just weren't enough synergies to take the deal
forward," said the source, who declined to be identified
because the talks were private.
Huawei [HWT.UL], the world's No.2 wireless telecoms
equipment maker, also declined to put in a bid, a company
source said earlier this month. Smaller rival ZTE (0763.HK),
also mentioned in earlier reports as a possible bidder, was not
approached on the deal, its chairman told Reuters.
Representatives from HTC and Lenovo both declined to
comment, and Palm officials were not immediately available
outside regular U.S. business hours.
Earlier this week, Lenovo's Chief Executive Yang Yuanqing
also declined to comment about a possible Palm buy. Shares in
the company closed up 2.7 percent at HK$6.09 in a Hong Kong
markets .HSI down 1 percent.
BUYER OF FADED LEGENDS
Industry observers said Palm would fit well into cash-rich
Lenovo's current strategy that focuses on growth through
acquisitions and movement into the wireless space.
Lenovo had over $2.4 billion in net cash reserves at the
end of 2009, it said on its website, and has previously said
that it remains open to merger opportunities.
Based on recent deals in the technology sector, a Palm sale
could potentially fetch $1.3 billion, given its current $1
billion market capitalisation and the 30 percent premium
recently paid in tech deals.
The company's advisers had previously been seeking about
$1.2 billion for the company -- a valuation considered too rich
by many suitors, one investment banking source said, speaking
on the condition of anonymity.
Another investment banking source, who also spoke on
condition of anonymity, said he was unsure on how aggressively
Lenovo was going to be in bidding for Palm.
"What are you buying - a good operating system?" he said.
"It's a wounded brand."
Palm has struggled to generate interest from buyers in its
Pre and Pixi smartphones, with customers turning to more
popular buys such as Apple's (AAPL.O) iPhone and Research in
Motion's RIM.TO Blackberry. It sold about 408,000 units in
the quarter ending Feb. 26, lower than the 600,000 units or
more many analysts were expecting. [ID:nN18254531]
After selling its cellphone unit to focus on its core PC
business, Lenovo bought back the unit last year as part of its
aim to become the Chinese market leader in mobile
communications, as the sector starts to converge with PCs.
Since then, Lenovo has launched a smartphone in China, but
still has no presence in the U.S. market, which remains the
world's largest smartphone market by number of users, according
to research firm IDC.
Market research firm Gartner expects growth in the
smartphone sector to outpace PCs in 2010, drawing a flurry of
new entrants into the sector once dominated by names like Nokia
The Palm purchase, if realised, would also fit into
Lenovo's history of expanding into competitive Western markets
by buying former product pioneers that have lost their edge.
The company is best known for buying IBM's (IBM.N) PC
business in 2005, and it also tried to buy Packard Bell in late
2007, only to be thwarted by bigger rival, Taiwan's Acer
The strategy has its critics.
"It's not a good idea for Lenovo to buy Palm right now,"
said Vincent Chen, an analyst at Yuanta Securities. "If it
does, it's got to be prepared to take on some of Palm's losses
and may have to see at least a few more quarters of losses from
(Additional reporting by Michael Flaherty and Melanie Lee in
Shanghai; Editing by Doug Young and Lincoln Feast)