Harbinger Capital Partners buys a 9.48% "passive stake" in Palm 88
Wed, 14 Apr 2010 2:21 pm EDT 
Palm announced today that hedge fund Harbinger Capital has purchased a 9.48% “passive stake” in the company. The purchase of 16 million shares, completed on April 12, equates to an investment of approximately $83 million at Monday’s stock price. The passive stake is one with no voting powers, otherwise this large of a share would have given Harbinger significant influence over the executive board of Palm. It is worth noting that this stock purchase is of common stock (the kind traded on the New York Stock Exchange) and does not represent an additional cash infusion for Palm.
Harbinger Capital Partners specializes in what they call “event/disaster strategies.” Their investment strategy revolves around putting money into companies they view as perched to experience significant growth and in companies that have fallen on hard financial times. Either (and both) could be used to describe their investment in Palm. Harbinger is headed by Philip Falcone, a billionaire who made his fortune from hedge fund management. The firm has made significant investments in the technology sector, and is actively engaged in the purchase and development of 4G wireless technologies. Last month Harbinger purchased satellite communications firm SkyTerra for nearly $262 million, and plans to spend as much as $4 billion building LTE network infrastructure to lease to American cellular carriers. As such, the 16 million share purchase of Palm stock is a drop in the bucket compared to how much Harbinger throws around on a daily basis.
What this means for Palm is nearly as complicated as what Elevation Partners’ investments in the company meant (Elevation Partners currently owns 30% of Palm). While Harbinger does not hold a voting stake in Palm, they can still exert significant influence on how the company is operated. It is worth noting that there are two other areas in which Harbinger invests: corporate shorts and value investments, both of which are passive investments, and have polar opposite opinions of the investment. Corporate shorting revolves around the borrowing and sale of shares that are believe to be overvalued, followed by the purchase and return to the lender of the shares at lower cost. Value investment is the more positive of the two, “where Harbinger believes a positive catalyst for value realization is already present” and the stock is poised to ride higher.
Given recent developments, we see the last option as the most likely. Even if it's just Harbinger riding Palm shares into the takeover sunset and reaping a healthy profit, they see the stock value on the rise and want to take advantage of it. As speculated by StreetInsider.com, Harbinger also has the option to convert their passive stake into a vocal one should they not like what they see, and with the billions of dollars they have to play with, Harbinger could even make a bid for Palm themselves and take the company private.
88 Comments
The news never ends... What will be next... Lets hope for a HTC purchase.
I think this means Palm will be staying independent!! lets hope for new hardware this summer and a few more tricks up ruby's sleeve!!
This does not represent a material change to Palm. They didn't gain a penny. If anything, they may lobby hard for a sale to ice a gain before the takeover fury fades.
Let's hope not.
Cisco or Lenevo would be a much better suitor and would do right by Palm.
Cisco? Would we then end up with IWOS, the Intelligent Web OS?
Really well-written article. Also, I am on a fanboy rollercoaster!
Really well-written article. Also, I am on a fanboy rollercoaster!
Derek, can you bold the last sentence of the first paragraph? Palm didn't make a penny on this stake taken by Harb.
Is this a good thing or what? I'm going to hide in a cave for a few months and wait to see what happens. I'll bring my touchstone and some snacks..and that's all I need! (steve martin, lol)
IT'S A PROFIT DEAL!!! THAT TAKES THE PRESSURE OFF!
I can't take it.
Make it stop.
I don't have a good feelin about this!
That looks like McNamee.. http://www.engadget.com/2009/03/10/roger-mcnamees-wild-predictions-shot-...
haha that was the first thing that came to my mind too
In six months, nobody will be getting rent checks signed McNamee.
I'm interested in seeing what this does for Palm's stock price...
It happened Monday during the run up. Yesterday, it all went back. Today marginal gain.
Honestly, I would love to see Palm made private. The volatility of being on the public market has caused issues for them.
Imagine if they didn't have a stock price to worry about... a lot of the negative news out there over the past few months would disappear.
Agreed. If Palm was brought private, and held by groups with a long-term view willing to wait a few years before getting a pay-out, it would only be better for Palm.
And a lot less idiot "analysts" spouting off about something they know nothing about.
If Palm was not public they'd possibly be bankrupt and liquidated because they'd have had no money from investors to fund their actions. And good luck getting new investors with such a tough balance sheet.
Not to mention if it's private most investors would do so with the intention of taking it public later anyways.
Because it's a public company last year Palm was able to raise $83.9 Million dollars by way of it's secondary stock offering. So merely being on the stock market allowed them to raise the capital that they are likely using this very day to stay afloat. http://news.cnet.com/8301-1035_3-10192384-94.html
Palm was already public with a bunch of debt so someone would have had to buy up all the outstanding shares which is a number in the hundreds of millions of dollars. money palm did not have.
The worst news Palm ever has is that the Pre kept having returns and the Pre did not sell. both of those are facts unrelated to the stock price.
You can blame being on the stock market all you want but the biggest issue Palm has wasn't produced by being on the stock market. It's that their product isn't selling. That's Palm's fault.
There is a very simple solution to Palm's stock market woes. Make a product that a whole lot more people want to buy. to quote Warren Buffett "If a business does well, the stock eventually follows."
No news at all. They'd be out of cash by now if they'd gone private. Stock price is immaterial if you have negative cashflow.
I thought it was pretty obvious that I meant they'd need to have a lot of funding before that'd be possible, but I guess not. :p
I don't think being private would have any effect on whether the phone sells. If it's appealing enough it will sell. If not it won't.
never put your money into a complicated financial structure company.
If you win, it's not due to your cleverness but lucky. If you loss, it is very normal. There are tons of undervalued mortgage bonds insurance companies ,which holding $100 state & munipals obligations assets ,selling at $50 in the market.
To me, palm is worthless but a routlete. Don't even think about it.
palm is worthless because they used up all their money building a fantastic WebOS.
I'll take this as good news. Gives Palm some extra cash to keep operating as a private company. That's really the best option for us lovers of webOS. Let Palm keep doing what they're doing and survive on their own.
Palm's phones have been getting great buzz lately. Most people's opinions of Palm is now "a great phone, but won't be a contender because they're getting bought." Take away the "getting sold" stuff, and Palm might really start selling some phones.
But it doesn't give Palm any cash. It wasn't a stock offering. they just bought outstanding shares. Palm receives no cash from this.
Thanks for the clarification. I'm not an investor. But I still stand by my point that Palm is getting press now. And some of it's good. Overall, this is good news for Palm and all of us.
The most notable effect is the shares they got were nonvoting common. So that removes dilution and give EP more influence. Swell?? (shivers)
Palm receives no cash directly, but this news is very positive if it raises the stock price. Not only will it be easier for the company to raise money in the future, but it effectively increases pay for Palm employees. Stock ownership and options are very popular incentive compensation at high-tech companies, especially those that are strapped for cash. This should boost morale at Palm and hopefully yield a faster rate of WebOS updates and better next-gen hardware.
"The firm has made significant investments in the technology sector, and is actively engaged in the purchase and development of 4G wireless technologies."
HMMMMMMMMMMMM.
I think this is actually reasonably good news and dont expect any "takeover"...The shorts (and there are plenty of them 40% which is down from like 45%) will end up feeling tons of pain over the next 6 months. As they get squeezed expect additional volatility to the upside mainly. Not recommending any investment vehicles but this is where call options can pay off.
If a takeover doesn't happen soon, price has to drop and the shorts will money. What you said didn't add up. Price is only up now in anticipation of a premium being paid. Palm has all but tossed their independence into the trashbin.
PreDogs;
Not sure I agree.
1. Its more than likely that the price increase was the result of the huge buying interest by this Hedge Fund on Monday.. its likely that they have many associated firms also buying shares based on their research given to them, as well, to add to that. The market respects one thing, ultimately: the supply and/or demand of the stock at any given price - there is currently no other way to evaluate the company yet, as they aren't profitable yet.
2. PALM's independance is still up in the air - the value of their patent portfolio alone was recently valued at $8 - $9/share; however subjective that may be, it IS a significant asset, and with Apple suing HTC, that asset is now front and center in many's eyes... this alone could provide them with enough "meat" to opt for a strategic alliance/investment from HTC or the like, rather than a full buyout/merger.
3. There are options on the table, other than being bought; they have more than enough cash to get them into thier next device, and if it is a success, all of this will be rhetoric.
If not, then, and ONLY then, will it be a garage sale for thier assets, at bargain prices.
IMHO, of course.
Ok, so, lets say you're right? With less money, less credibility, and now even larger competitors, what is Jon and crew going to do differently to lead Palm out of certain doom?
I don't see where this could possibly go. Can the phone get any cheaper? Can they make it any functionally faster or stable in the next three months? Can they sell off the surplus and still have money for a new device? Licensing WebOS will only provide a minor revenue stream, maybe enough to keep the lights on.
Face it, anybody that wanted WebOS in the Gen1 devices has either bought it, changed their mind, or bought it and bailed out. Who is Jon seeking. Why will people suddenly decide the Pixi or Pre is the phone for them now? Their only hope is to continue WebOS development and get it installed on a robust device ready to run it. They dont have the money to develop both and they certainly dont have the money to promote it when it's ready.
Ok, so, lets say you're right? With less money, less credibility, and now even larger competitors, what is Jon and crew going to do differently to lead Palm out of certain doom?
-I dunno.. lets take a wild stab: make a better device next? :) They have MORE than enough for R&D to make a new phone that kicks butt. Even JR said they have learned thier lesson.
The rest of your questions all relate to the current devices. They are making them better (so it is said), and will likely sell the remainder of thier stock, along with carriers selling thier own stock (channel sales) with increased marketting efforts. Mostly available now are the + models, at very good prices.
As for your comment about anyone wanting a WebOS device having already bought it, changed thier mind or bought it an d bailed out, you are wrong:
There are MANY of us, here in the US, and around the world, that have been screaming for an unlocked GSM version. MANY.
There are 3 billion cell phone users in the world, with 75% of them using GSM versus CDMA.
PALM screwed up doing an exclusive for Sprint. I think they know now that they need to release phones for all consumers to be able to buy on thier preference of networks.
Unlocked versions MUST be simultaneously released with their next phones, hands down!
I agree with you in principle, all they really need are:
1) A little time to develop wOS and a new device.
2) A lot more money than they have.
3) A second chance to make a first impression.
4) A marketing plan that works.
I agree 100%. Count me as one of those 75 percentiles of users who have been begging Palm to do a GSM unlocked device. In addition, I cannot stress enough how Palm screwed up so badly with the Sprint exclusive launched.
I, including so many I know in my country, have been dying to get an unlocked WebOS device. If Palm had launched an unlocked GSM Pre to the world, trust me, they would be in a different position right now.
In my humble opinion, Palm's CEO should be fired or be relegated to head R&D of WebOS.
though I am with sprint, and will be for quite some time. I can accept that LTE is a better technology. Perhaps this will allow palm to develop a 4g phone for sprint and also a 4g LTE handset for verizon, etc. I hope palm "nuts" up and gets strong enough to cause bigger waves in the cell phone world.
Good News or Bad News? I was hoping for an story about HTC .. Who is these guys?
HTC buying Palm would be a tragedy...unless HTC drops both Android/WinMo and continue with webOS as it's sole Operating System. Why is this unlikely? Well, the reason HTC is successful today is because of those other two OS's and the exposure to their respectable shares in the mobile world.
HTC owning Palm's webOS plus catering all the other players would be overextending itself and will likely ignore the smallest market - which is still current webOS.
So for those wanting HTC to buy Palm, think about the bigger picture.
Palm needs to stay Independent for webOS to continue and evolve.
I can't argee with that; not all buyouts equal takeover. I could see HTC buying Palm and becoming a parent company. Palm would recieve extra funding, greatly benefit from hardward R&D at an extremely reduce cost. HTC would get Palm's patents and become an even larger player in the smartphone world which equals more money for them. HTC would not touch WebOS that would still be Palm's job
+1 There is not enough critical mass with Palm's current assets. They didn't even get close with the terrible execution since the regime change. While I love WebOS, it is brilliant -despite- the bungled management. I see no cashflow or marketing brilliance from the current marketing team. "Bold swagger" didn't cut it and Palm has fallen further behind since June.
If that were the case then I'd be totally for it...as w/ all the other skeptics on the ship. But even if HTC acted as just a parent company...soon enough it will change the dynamics of Palm's team - including leadership.
Would you want someone throwing you out of your own home that you've spent years building? Would you like it if co-workers you've worked side by side with be replaced by others who may be under qualified? This is why Palm will never give up it's independence unless it's ABSOLUTELY NECeSSARY...and w/ just over $500,000,000 at hand, they still have a year to make things happen.
I also believe that if Palm does decide to take an offer from a sutor it sees fit, it will include stipulations - most important would be the contiued support & evolvation of webOS by the original Palm team!
I wish I had money like Bill Gates...I'd loan another $500 million to Palm to get things rolling.
The brain drain starts now. If you're a great O/S engineer and your paycheck has an expiration date on it, do you wait?
Not likely Palm will be properly rewarding talent if they are in conserve/survive mode. Time to jump and get a better position before you find the interview room full of your coworkers.
This independent-to-the-final-penny spirit is very noble for us $200 phone owners, but these guys are regular people like you and me. They've got mortgages to pay, kids to feed, wireless bills to cover. "I hope it works out" is not what you'd think if this was you in their shoes. "I'm sorry honey, I thought Jon had learned his lessons and that he could turn things around with no money". That's not what I'd let myself say at the dinner table on 4/15/11.
PreDogs;
You are overly pessimistic here.
Being cautious is ok, but you are screaming "PANIC" and there is no need.
There is no "expiration date" on thier paychecks... they have enough cash to keep them going for another year while seriously infused into R&D. In that time, either they fail or succeed.
If they fail, they will be bought out for thier IP and physical assets; its that simple. Employees will have gotten a salary for the time being and as with all other jobs in the current economy, they will have to fina another one. If they are really good, they'll find another one fast enough.
If they succeed (success being defined as providing a product that is in demand and leads to profitability), then employees will be able to excercise thier stock options and do VERY well, indeed.
Optimism says sunny days are coming. Pessimism says there is nothing good here, even for an acquiring party. I'm expressing realism. Palm and it's assets will likely only lose value going forward. Inventory high, cashflow negative, sales declining,...what is there to grab hold of here as a talented employee? What trick did they not try when floating in cash that might work now? That's just the reality of the situation. I want Palm to find a partner while they still have talented manpower on staff. That is WebOS's best chance of survival and growth. And I think Jon agrees. You don't solicit Goldman Sachs to set up licensing for an O/S, and you don't call them to "test the waters".
This makes perfect sense! All the buyout articles have said Palm is looking at several options. This is the best one of them all. They get an investment from somewhere to give them more money. Now (Hopefully) they will remain independant and can keep WebOS moving forward and hoepfully release a new phone sometime soon! Just my two cents worth
NO INVESTMENT occurred. New tenant, same old apartment, no rent increase.
does anyone else see a buzz button on everything now? Like this article... I thought Buzz was dead.
...for those of you who don't know what to take of this article and news --> IT's GOOD! Palm is loving the exposure now whether good or bad as long as PALM and WEBOS are the talk. Why? Well, even if it's bad doom & gloom news OR negative talk about hardware problems w/ 1st gen smartphones...as soon as new commercials spring up and new quality built device(s) running webOS the talk will be positive and hype will come into play.
...the rest is history! Palm can do it...it will succeed!
"...it aint over till JR says it's over!"
This is probably a good sign, both for the company technology wise, and stockprice wise:
1. Technology wise: these are technology investors - well learned in this sector, and likely have done extensive due dilligence that is beyond the capabilities of the average investor. If they see greater value here, and bought at $6/share, then Wall Street will certainly respect that.
2. Stockprice wise: these guys can't lose. If PALM stock prices go higher because of success, thier shares will gain value, and they can sell for a profit. If the price goes lower, they can short it and cover with the shares they already have, and make a signficant profit there, as well - however, remember, the only reason for them to short it, though, would be if PALM is on the verge of true failure, which, I am fairly sure that isn't even close to the situation now.
If you want a clue as to what is going on, go to NASDAQ and wait until the April 15 short sales are posted, (usually around the 15th of the month or so... ) you can see how many shares were shorted as of that date:
http://www.nasdaq.com/aspxcontent/shortinterests.aspx?symbol=PALM&symbol...
This will be updated Friday, and should be an interesting pattern to see. The short interest has built up significantly since last fall, and peaked in February. If there is a sharp decline in the short interest on Friday, that's one indication of what Wall Street thinks of PALM's future, in light of this investment.
If price resumes it's decline, there won't be enough shares available to borrow. Shorting doesn't create shares, they have to exist in the first place. And the owner has to be willing to lend them.
PreDogs;
IF they already own 16 million shares, they can use them to cover thier short sales (they borrow their own shares to sell short).. thats part of the downside strategy - no pressure.
;)
For those who don't understand short selling:
Shares are sold first (technically "borrowed" from brokers after the fact), with the hopes of the stock price dropping, so they can buy them back at lower prices, and reap the profits.
Cool, a box, so they can make margin payments on their long shares and pay their prime broker finance on the shares they borrow from their own book, then if they cover their long with 3:1 short and the price spikes up on acquisition, they pop!
Cool, a box, so they can make margin payments on their long shares and pay their prime broker finance on the shares they borrow from their own book, then if they cover their long with 3:1 short and the price spikes up on acquisition, they pop!
Like sands through the hourglass, so are the Palm stories of our lives.....
The Palm and the Restless :-). I had to do it.
My guess is that they are positioning themselves for the inevitable takeover. But, I do think they see value in WebOS (on top of the patent portfolio) and I think that is at least a vote of some confidence.
palm is not being bought so all this bs is ridicolous ...
This keeps them in the focus which is good. Business talk is always good. It draws attention to the company. People will want to know what product this company palm is selling anyway...is it really that good/bad? That is my guess...
Hedge Fund? Palm what are you doing?? These Hedge Fund crooks are primarily responsible for the poor economic state America is in. By the way, the money Hedge Funds operate on, is tax payer money.
phenom;
See my post above.
Usually, hedge funds are least likely to be trusted when they purchase shares as a private offering fromt the company off the market, as an "investment".. usually at below market prices, and usually because the company is in dire need of cash.. PALM certainly isn't, and this purchase was done in the open market, and was part of the huge volume Monday (135m shares of PALM traded.. PALM has about 185m shares outstanding in total).
;)
Even still, with respect to "Hedge Funds", whether they purchase or invest, it's OUR money being thrown around. Hedge Funds were/are kept afloat during this economic crisis, on the backs of the tax payer.
Of all the hedge funds out there, only a few were part of the banks that received bailout funds. Harbinger Capital Partners was definitely not one of them.
Derek;
I have heard the same.
This fund appears to be the type that looks at investments from both aspects, and takes their position accordingly.
Right now, it appears that they are heavily long PALM.
The stock price is holding quite steady at a good volume, at around $5.50 or so, which, I would bet is really, REALLY close to their average share purchase price.
IMHO, of course.
Philip Falcone has other Hedge Funds, ever heard of, "Blue Line Overseas Fund?" When these guys (cough-crooks) stand before one Hedge Fund, there are several others you're not aware of. As I've said, somewhere down the pipeline, tax payer money is being shifted.
Phenom;
The whole stock market is all about "shifting" of wealth. No new money is ever "created", it just moves from one pocket to another.
That being said, this particular group haas what appears to be more of an "investor" strategy, but always making sure they have options if the investment goes bad on them.
IMHO, of course.
Thank you for saying that, "No new money is ever created".
Keep in mind that the TARP money given to banks was loaned at 5% interest, and most of this money has already been paid back with interest. From the money given to banks, the US Government has actually made a profit with TARP. The reason TARP is still losing money is because the current Administration has taken the money coming in from banks and has spent it again for other purposes. In a WebOS forum, I won't take a political position as it's a distraction from WebOS. But the US government actually made money from the TARP money loaned to banks.
AIG is a separate matter, but AIG is an insurance company, not a hedge fund.
It's stock that anybody can buy. Palm can't stop them from buying common shares.
Sure anyone can buy it, would you rather they use their 9-5 paycheck, or yours?
Hedge funds have gotten no tax money. Many collapsed in the last three years. Not one received any bailout money.
If you honestly believe that, I have a bridge to sell you. Oct 2008 the Fed's discovered $100Bil of the bailout money was missing. 2009 was the richest year ever for Hedge Fund Managers and Investors. There is a so-called ongoing investigation, I surely will not hold my breath, all the Fed's have to do is go to Capitol Hill with a bunch of handcuffs.
I'm sure they all got together around a suitcase with $100billion and split it up and walked away.
It's actually refreshing to find you trust the government more than you trust hedgefunds. Conspiracy theorists usually have no faith in the public sector at all.
2009 saw a year of great recovery. The fact that funds (the ones that were left) saw record gains is not all that surprising.
Hey Derek, so why does this guy have his picture in front of the Palm logo? Does he already have some connection with Palm? Is this a photoshop?
Photoshop.
I think this is good news. It means that palm has a source of money to continue in their current direction, including development of webos for the Pre and Pixi. Are you all really so gadget starved that you'd rather see someone else produce a new webos phone than continue to see the pre and pixi developed?
You will see more of this as the vultures start to circle. I would love for this to be good news, but IMO its more a sign that the buyout or takeover is comming. This is a short term investment for Harbinger. Just waiting for the payday, then they are gone.
So then it isn't a positive or negative in that scenario, for Palm. With all the other talk going on this seems pretty far from something to get worked up over like some guys seem to be.
My Palm is getting "Rosey" from all of this back & forth action.
"Apply the Frictionless Easy Slider Patch and you should be fine." -webOS Doctor
I'm glad I put my hard earned money into this phone/os.. Gives me something to read about everyday and thanks to these articles and people's comments I'm learning a little bit about the stock market. Really interesting schtuff.
what got me interested in this platform in the first place was the general openness of the operating system and to see what normal peoples could do to it. Linux is good stuff.. And google's spin on a linux based phone os just seems to me like just a way to get you to more google services where here, it's just about the phone
of course you can look at this as a positive or a negative sure, but still look at it as people are looking at a very small company with maybe a bright future. IMO I hope this is the case, because even as the argument with companys like HTC, where they have two ATM machines right now in GOOGLE, and MICROSOFT and I'm sure they don't want to mess with their releationship with either one. Though HTC plays a hipocrate stating first that they are fully committed to companys like microsoft, then turning around and stating they would like to be independent like Apple and own their own OS. To me thats why I'm iffy about the subject of HTC buying Palm, due to maybe them just wanting the patents and continuing on. Hopefully They don't, and even if they want to continue on with a relationship with windows mobile, and Android they purchase, and fund Palm and help make devices for them.
yup i believe that palm is gona stay i.dependent
Hey Derek-- good article, good job. Keep it up man.
Maybe with a Cisco buyout we will see Ellen Page doing voiceovers with her slow, dry voice. I'm sure that will light a fire under sales...
(it's oddly sexy, though)
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