Palm’s Review of Merger Talks Warrants Skepticism

In its preliminary merger proxy, a recent filing to the SEC, Palm and its investment-banking agents try to make it seem as though there had been frenzied competition to buy Palm right up until HP finally made its successful final bid.

I think you should treat these claims with a healthy dose of skepticism. Allow me to explain my reasoning.

First, it is in Palm’s fiduciary interest to demonstrate that it left no stone unturned in pursuit of the best possible deal for its shareholders. Palm wants to avoid lawsuits from aggrieved shareholders, and it wants to make the case that it did everything within its power to identify and negotiate the best outcome.

For the record, I think Palm did right by its shareholders, but I realize the company still feels compelled to gild the lily in making its case.

Second, Palm suggests that all companies with which is spoke were potential acquirers. However, if you parse the language, my friends, you will discover, in the phraseology of a passe bit of vernacular, that it wasn’t all that.

Here’s a direct excerpt from the SEC filing:

From February 25 to April 1, Palm management, Goldman Sachs and Qatalyst Partners were in contact with a total of 16 companies including HP. Of these, six companies, including HP, entered into nondisclosure agreements and participated in meetings with Palm and its advisors to review non-public information concerning Palm regarding a strategic transaction. . . .

At least 11 of those 16 companies were never seriously in the running for Palm. They could not even be bothered signing non-disclosure agreements (NDAs), which are hardly signifiers of impending M&A transactions.

Even those companies that signed NDAs were indicating merely that they wanted to do deeper dives, to see what was under Palm’s kimono. In signing NDAs, they were not committing to bids. They were just gathering information to see whether Palm might be attractive for any one of a number of commercial arrangements, including strategic partnership, licensing pact, or — potentially, if everything looked good and the stars aligned — an acquisition.

But, as anybody who’s done any degree of business development will tell you, an NDA is just an NDA. It facilitates disclosure and potentially deeper discourse, but that’s all it does.

The way I read the Palm sale, several companies were willing to look at Palm, but only three had any meaningful interest in an outright acquisition of Palm. The others were kicking tires, trying to gain market intelligence, or were interested, at least superficially,  in a partnership or a licensing arrangement.

When push came to shove, HP was alone, despite a belated acquisition bid from a company that initially had been interested in licensing intellectual property from Palm.

So, while HP was not alone in the starting gate of the Palm Derby, it quickly established a widening lead position. Other parties had varying degrees of interest in Palm, but I don’t think HP was ever in serious danger of being overtaken.


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