PalmSource Buzz – Potential Buy out?

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Fresh from the departure of PalmSource CEO David Nagel, Kate Gibson of TheDeal.com writes an interesting article about PalmSource being riped for the picking.

“They lost a CFO in February, who was replaced by a better CFO, then they lost the head of sales in March, who was replaced by a better head of sales, and now you have the CEO leaving,” said Jamie Friedman, an analyst at Fulcrum Global Partners LLC. “It is a scenario where the company could get acquired.”

The most likely buyer would be palmOne, which use to be the hardware unit of Palm. Nagel, the former chief technology officer at AT&T Corp., joined Palm in 2001 and served as CEO, president and director at PalmSource.

But why would palmOne, which is profitable and whose stock trades at more than $27 a share, want to buy money-losing PalmSource, whose shares have fallen from a 52-week high of $27.20 to less than $9? In large part, the software maker’s value is in the licensing agreements between the two companies under which Milpitas, Calif.-based palmOne is contractually obligated to pay $88 million to PalmSource through next year.

With a market capitalization of $150 million and $75 million in cash on hand, PalmSource would cost palmOne roughly $75 million, Friedman said. But PalmSource could fetch up to $225 million from another potential buyer, Research in Motion Ltd., he said. The Waterloo, Ontario, company, which makes the popular Blackberry wireless communication device, could be willing to pay more for PalmSource to expand its presence in the higher margin software business, Friedman said.

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