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Speculation of Palm Buyout Rises

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

The Sunnyvale, Calif.-based 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.

Now, according to Unstrung.com, Morgan Stanley wants to close a deal by the time Palm releases its fiscal third-quarter results Thursday. Citing unnamed sources, the business news Web site focusing on the wireless communications industry said the potential buyers included cell phone 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 phone call seeking comment.

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

Nokia, the world's largest handset provider, is a leading candidate to buy Palm, pondering a bid of $19 per share to $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 $1.58 billion in sales in its fiscal 2006, Palm has seen its shares surge more than 33 percent this year amid the takeover speculation. 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 its fiscal second quarter.

But Motorola itself is struggling. Profits for the Schaumburg, Ill.-based company fell steeply in the fourth quarter and its chief executive earlier this month pledged to return Motorola to double-digit operating profitability in the second half of 2007.

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's spending its cash well, the site said.

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

Palm shares closed Tuesday at $18.77, up 63 cents, or 3.5 percent, on the Nasdaq Stock Market.

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