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Investor: Palm Has ‘90% Chance’ of Bankruptcy or Merger

Palm Inc. (PALM) has a 90 percent chance of going bankrupt or getting acquired within a year.

That’s according to a hedge fund insider who talked to MarketWatch this week.

As Palm watches its market share evaporate, and its losses mount, the company – which makes the Palm Pre and Pix smartphones – appears to have fewer and fewer options for survival. Just yesterday, reports surfaced that Verizon Communications Inc. (VZ) will stop promoting the Palm Pre. That’s a huge blow, despite the announcement that AT&T Inc. (T) will start selling the Pre and Pixi devices.

And now comes the projection that Palm is bound for insolvency or integration with a larger rival.

“The trends are horrific and clear and almost impossible to reverse at this point, which is why we are not covering our short position,” Whitney Tilson, managing partner of hedge fund T2 Partners, told MarketWatch.

Approximately 43 percent of Palm’s common stock is held by short sellers, MarketWatch noted. Those investors are betting on Palm’s continued downfall.

Meanwhile, many observers are wondering what Palm’s declining fortunes mean for Elevation Partners, a Silicon Valley private equity firm that boasts U2’s Bono as an investor. Fortunately, for Elevation Partners at least, the Palm investment doesn’t look to be too much of a drag. Because Elevation bought preferred shares in Palm, those stakes keep their original value when there’s no reason to convert them into common stock. So Elevation’s original $460 million piece of Palm now is valued at about $432 million, MarketWatch reported.

Palm has suffered as competitor devices including the iPhone, Droid and BlackBerry have snared more end users. Inventory at Verizon has piled up as consumers choose many other brands over Palm. And as that’s happened, Palm’s operating and R&D expenses keep growing, with less revenue to offset the costs.

Shares of Palm were trading .5 percent higher at about 1 p.m. Eastern, at $4. The company’s 52-week low is $3.65.


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