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Web report heightens speculation of Palm Inc buyout

Speculation of a buyout of Palm Inc heightened on Tuesday after an industry online publication reported a deal could occur this week.

The maker of Treo smart phones and handheld computers hired investment banker Morgan Stanley a few weeks ago to explore its strategic options, including a possible sale, according to a person familiar with the situation.

Unstrung.com says Morgan Stanley wants to close a deal by the time Palm releases its fiscal third-quarter results today.

Citing unnamed sources, the business news Web site focusing on the wireless communications industry said the potential buyers included cellphone makers Nokia Corp and Motorola Inc, and private equity firms Texas Pacific Group and Silver Lake Partners.

Representatives of Morgan Stanley, Motorola, Texas Pacific Group and Silver Lake Partners all declined to comment on the report. Nokia did not immediately return a telephone call.

Marlene Somsak, a spokeswoman for Palm, also would not comment on the report except to reiterate that the company "is focused on growing its business."

Nokia, which is the world's largest handset provider, is a leading candidate to buy Palm, pondering a bid of US$19 per share to US$20 per share, but Motorola, the No. 2 handset maker, may try to outbid its Finnish rival, Unstrung.com reported.

Palm's management, however, is leaning toward selling to a private equity investor, the site said.

With US$1.58 billion in sales during its last fiscal year, Palm has seen its shares surge more than 33 percent this year amid the speculation of a takeover.

The handheld computing pioneer has a loyal customer base and is profitable but faces a growing list of powerful rivals, which will soon include Apple Inc.

Competitive products from Nokia, Motorola and others, contributed to Palm's lower profits and revenues in the second quarter.

But Motorola itself is struggling.

Profits for the company fell steeply in the fourth quarter and its chief executive earlier this month pledged to bring Motorola back to double-digit operating profitability in the second half of this year.

Acquisition of high-end products like Palm's Treo 680 could help Motorola survive a price war with Nokia, Unstrung.com said.

Motorola also needs to show Carl Icahn, a leading stockholder, that it is spending its cash well, the site said.

Analysts say a private sale could help Palm by shielding the company from quarterly scrutiny and freeing up the company's management to make acquisitions.

Palm shares closed on Tuesday at US$18.77, up US$0.63 cents, or 3.5 percent, on the Nasdaq Stock Market.
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