Palm Christmas Sale Cancelled: Not Giving Away Company*

Update: My original post was wrong. The Elevation Partners transaction was not reflected in the August financial statements (or on Yahoo Finance) and Palm now has (or will soon have) $400 million in new debt and about $350 million in cash.

As of Aug 31, Palm had $627 million in total cash and short-term investments. Elevation put (or will put) in $325 of equity and Palm will take on $400 million of debt. Palm will then pay out $940 million in cash to existing shareholders (but not Elevation). Net cash around $350 million.

So, please ignore the original post below. Palm’s enterprise value is now about $600 million. Bono’s Elevation, meanwhile, appears to be underwater to the tune of $3 a share.

Yes, we think Palm sucks. But it’s worth observing that the company is trading for cash value.

At $5.50 a share, Palm has a market value of about $550 million, and at the end of August, it had about $550 million of cash. Thanks to its disastrous quarter, the company will undoubtedly take a restructuring charge, but it will still have a meaningful pile. And the 10% holiday headcount reduction should stem any cash burn for a while.

So the question is this: Can Palm be salvaged? Can it blow out its incompetent management team and recruit a better one? Can it be taken over by Research in Motion, Nokia, Motorola, or another gadget maker desperate to have a chance to compete with Apple?

If you think the answer is “yes,” now is the time to look at the stock. Now, when everyone else is filled with feelings of love and admiration for Research in Motion and Apple and disgust and loathing for pathetic Palm.

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