Palm, whose shares jumped 19 percent Monday to $6.16, is
working with Goldman Sachs Group Inc <GS.N> and investment
banker Frank Quattrone’s Qatalyst Partners, according to a
source, who spoke on condition of anonymity because the process
has not been made public.

Alternatives include the pursuit of additional capital
investment or an attempt to reach a licensing agreement for its
WebOS phone operating system software, the source said.

News that Palm had hired Goldman and Qatalyst was first
reported by Bloomberg, and followed several days last week when
the company’s stock swung wildly on takeover rumors. For the
week, Palm shares were up 32 percent [ID:nN09112835].

Speculation about a sale of Palm has swelled, as sales of
its Pre and Pixi handsets flag amid concerns that it cannot
compete against Research in Motion Ltd’s <RIM.TO> <RIM.TO>
BlackBerry, Apple Inc’s <AAPL.O> iPhone or phones powered by
Microsoft Corp <MSFT.O> and Google Inc <GOOG.O> software.

But analysts cautioned that Palm’s exploration may not end
with a sale, given Chief Executive Jon Rubinstein’s optimism –
at least publicly — that the company can be turned around.

Last month, Rubenstein told analysts that “the issues we
are facing are far from insurmountable” and that the long-term
potential for Palm “remains strong.” He reiterated that stance
in an interview last week with Fortune magazine, in which he
said Palm’s transformation had merely “hit a speed bump.”

“The change of direction seems very sudden — who knows
what may have happened behind the scenes,” said NPD analyst
Ross Rubin. “But it is very competitive out there, and Palm is
competing with some companies that have tremendous resources.”

PRICE TAG – MORE THAN $1 BILLION

Suitors would likely pay more than $1 billion for Palm. As
of Friday’s close, it had a stock market value of $870 million,
and deals for technology companies are carrying a premium of
about 30 percent these days, according to bankers. Any buyer
would face additional integration costs.

Still, the price tag could be far lower than what Palm
would have fetched last year, following the introduction of its
Pre phone. In the past six months, the money-losing company’s
stock has tumbled 69 percent, and its market capitalization has
tumbled from about $2.4 billion.

At the moment, Elevation Partners, the private equity firm
that includes U2 lead singer Bono among its partners, controls
roughly 30 percent of Palm. Elevation in 2007 bought a 25
percent stake in Palm for $325 mln, and has made three more
investments in the company since then.

Spokespeople from Palm in Europe, Goldman Sachs and
Elevation declined to comment. Qatalyst did not immediately
return calls for comment.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Factbox on Palm, click
[ID:nLDE63B0YA]
for a graphic, click
link.reuters.com/haw47j
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For years, Palm was considered a target for larger
companies hoping to enter or expand in the mobile market.
Analysts say its most valuable asset is the WebOS operating
system, which yielded rave reviews but lackluster sales.

Palm shipped a total of 960,000 smartphones in the February
quarter, but only 408,000 of those went to consumers.
[ID:nN18254531]

“Palm’s limited scale, distribution and weak global brand
outside the United States all point to a takeover as the next
chapter in the Palm story,” said CCS Insight analyst Geoff
Blaber.

The challenge, Blaber said, would be “finding a buyer
prepared to pay a premium for an immature platform,”
particularly when so many companies have already invested
heavily in Google’s Android system.

What may have pushed Palm to consider a sale, analysts
said, is the intensifying competition in smartphones, among the
hottest areas in consumer electronics. Not only does Apple have
plans to improve its already popular iPhone, but Microsoft on
Monday unveiled another new line of phones. [ID:N09124031]

What’s more, Palm’s effort earlier this year to bring its
Pre and Pixi phones to Verizon — after they had been
exclusively sold by Sprint Nextel Corp <S.N> — failed to
ignite sales.

“It’s as a good a time as any (for a sale), because I just
don’t see an immediate turnaround,” said analyst Lawrence
Harris of CL King & Associates.

Interest in Palm could come from a number of corners,
including computer makers and rival handset makers.

HTC Corp <2498.TW>, the world’s No. 5 smartphone maker, had
“opened discussions about an intent to acquire” Palm, Taiwan’s
Economic Daily News reported on Friday. Earlier in the week,
rumors circulated about a potential bid from Lenovo Group.

Dell Inc <DELL.O> and Microsoft, as well as handset
manufacturer Nokia <NOK1V.HE> and Motorola Inc <MOT.N> have
been named in the past as potential suitors. [ID:nN23396446]

(Additional reporting by Tarmo Virki in Helsinki, Sakthi
Prasad in Bangalore and Victoria Howley in London; Editing by
Karen Foster, Derek Caney and Richard Chang)

The studio, struggling with $3.7 billion of debt, said in November it was exploring a potential sale of the company. It said at the time its other options included operating as a stand-alone entity or forming strategic partnerships.

Second-round bids are due on Friday but it was not immediately clear how many firms submitted offers.

At least three parties, including Time Warner and billionaire Len Blavatnik’s industrial holding company Access Industries, have been expected to put in bids, sources familiar with the process said.

Lions Gate Entertainment has also been expected to bid, sources said, but doubt was cast on that by investor Carl Icahn’s offer on Friday to buy Lions Gate, a move designed to forestall its expected bid for MGM.

However, the value of these offers is likely to be below $1.5 billion — far less than the level MGM was initially expecting, the sources said.

A committee of MGM’s creditors is expected to meet on Tuesday and is likely to assess the company’s situation, one source said.

MGM had earlier this year considered a prepackaged bankruptcy along with a sale.

However, in recent days it has increasingly factored in the possibility that bids will come in far lower than it originally expected and that a stand-alone plan might be more favorable to creditors than a sale, those sources said.

A stand-alone reorganization plan would most likely involve it seeking bankruptcy protection to rework its debt, with creditors taking control. Still, two sources familiar with the process were skeptical about the stand-alone plan, pointing to the potential difficulty of execution.

Several initial bids, submitted January, came in under $2 billion, sources said at the time.

MGM has a renowned film library, home to James Bond movies and other gems, but has been struggling to create new hits as sales of DVDs shrink and people access entertainment online.

MGM’s debt mostly stems from its 2005 buyout for $2.85 billion by a group including four private equity firms — Providence Equity Partners, TPG, Quadrangle Group and DLJ Merchant Banking Partners, a unit of Credit Suisse — and media companies Sony Corp and Comcast Corp.

MGM declined comment on the process on Friday.

(Additional reporting by Jui Chakravorty and Alex Dobuzinskis in Los Angeles; Editing by Gary Hill)

Shareholders are unlikely to bite, because Icahn’s offer is low, but Icahn hopes to prevent Lions Gate from overpaying for the struggling studio behind the “James Bond” franchise, analysts say.

Sources have said bids for MGM are due Friday. Shares of Lions Gate were up 0.7 percent at $6.01 on the New York Stock Exchange — 1 cent above Icahn’s offer price.

“He has to realize that with the shareholder ownership (of Lions Gate) so concentrated among a few firms, he’s not going to get to 50 percent. Those guys don’t want to sell at $6,” said Matthew Harrigan, an analyst with Wunderlich Securities.

Icahn’s move “certainly makes it more difficult for Lions Gate to mount a bid,” Harrigan said.

Mark Rachesky, Icahn’s former investment chief, and his MHR Fund Management own 20 percent of Lions Gate as its single largest shareholder. He has not expressed interest in Icahn’s offer but has said he supported Lions Gate’s board.

Lions Gate, which backs the “Saw” franchise and critically acclaimed “Mad Men” TV series, is keen on picking up MGM’s library of mostly older hits to bolster its own. Media companies are pondering similar acquisitions in an effort to build content, as movie audiences migrate in greater numbers to on-demand video and Internet streaming.

But in a statement, Icahn appeared to question Lions Gate’s interest in MGM — which was not mentioned by name — citing dwindling DVD sales as contributing to the decline in all film-library values.

“It should be up to the shareholders to determine if they wish to more than ‘double down’ on another library, especially in light of the company’s admitted ‘substantial degree of leverage,’” Icahn said in the statement.

The activist investor, who has publicly held the studio to task for its $255 million acquisition of TV Guide in 2009, has now offered to buy all of Lions Gate’s outstanding common shares for $6 apiece, amending a February offer to buy 13.2 million shares at the same price.

HOW LOW CAN YOU GO?

The investor, who owns slices in a broad swathe of U.S. companies such as American Railcar Industries Inc <ARII.O> and is known for trying to influence the direction of companies such as Time Warner Inc <TWX.N> — owns 18.9 percent of Lions Gate. He made his initial offer to buy its shares in February.

A representative for Lions Gate did not return calls.

Lions Gate’s board has turned down Icahn’s offer as too low. It recently proposed that its shareholders adopt a defensive rights plan, or poison pill, to help ward off attempts to accumulate shares.

Icahn said on Friday he has no interest in raising his offer, which he argues is already $1.15 higher than the $4.85 closing price on February 4 — before he launched his first offer.

Icahn said he intended to pursue legal action against Lions Gate’s poison pill. If his offer were successful, his firm, the Icahn Group, would replace the studio’s board of directors with its own nominees, he said.

Lions Gate is expected to put in a second-round bid for MGM, sources familiar with the matter have told Reuters. Bids for MGM are due Friday, and the sources also expect Time Warner and Len Blavatnik’s Access Industries to make offers.

Some investors are nervous that a change of control of Lions Gate might trigger debt obligations that Lions Gate might not be able to fulfill.

Lions Gate has said if Icahn increased his stake in the company beyond 20 percent, it could trigger a “change of control” clause in the company’s revolving bank loan facility, which would constitute a technical default.

As a result, bank lenders could accelerate the maturity of outstanding debt and bond holders could do the same.

(Editing by Edwin Chan and Gerald E. McCormick)

In fact, Elliott is no stranger to this type of deal, having made similar offers to a handful of small tech companies in the past. Typically, it owns large stakes in the companies it goes after. Last year, it was part of a private equity team that acquired MSC Software for about $360 million.

Elliott also offered to buy Packeteer, another small Nasdaq-listed tech company it owned a large stake in, but it was eventually acquired by Blue Coat Systems in 2008. Another company Elliott went after was Epicor Software, but that bid was unsuccessful.

In 2006, Elliott was part of a group led by tech-focused private equity firm Francisco Partners that took bar-code scanner maker Metrologic private. Two years later, Honeywell acquired Metrologic for $720 million.

Novell seems to be the biggest tech company Elliott has gone after. What does the future hold for the company? Clearly, the market is expecting more, given that shares are trading today at $6.02, up nearly 27 percent. Elliott’s offer is for $5.75 per share, or about $2 billion. Expect a lot of back-and-forth on this one.

Revenues for the quarter and full year are being impacted by slower than expected consumer adoption of the company’s products that has resulted in lower than expected order volumes from carriers and the deferral of orders to future periods.

Palm launched the Pre last year amid much fanfare, followed by the Pixi, with many celebrity tech columnists ooh-ing and aah-ing about the operating system, webOS, that could run multiple applications at once and perhaps even become the iPhone killer. But that enthusiasm has clearly not translated into sales, as Palm struggles to loosen Apple’s vice-like grip on the consumer smartphone market — even as newer competitors, such as Motorola’s Droid and Google’s new smartphones, based on its Android operating system, crowd the market.

In recent conversations, people close to Palm have said the company is single-mindedly focused on building scale and developing its “app store,” the virtual shop where users can buy small programs for everything from calorie-counting to weather. To that end, Palm is seeking to build its geographic presence and build partnerships with more wireless phone carriers (Sprint and Verizon currently sell its devices, and AT&T also plans to sell them).

“Palm’s just a little peanut with a good operating system,” said T Rowe Price portfolio manager David Eiswert recently, when he stopped by our offices for a chat. Eiswert, whose fund owns about 12 percent of the company, is bullish on Palm, and calls himself a webOS guy. But while he believes that the recent tie-up with Verizon will help it gain “shelf space” from Research in Motion, which sells the BlackBerry device, Eiswert said that Palm has a long way to go.

“Is Palm’s operating system where it needs to be? No,” Eiswert said, adding that an upcoming version of the software could be a big improvement. “The question for Palm is, can they deliver a compelling product? Can they get distribution?” The hardware, too, he said, was just “OK, not compelling.”

So then, do Palm’s big shareholders, including private equity firm Elevation Partners and funds Fidelity, T Rowe Price and Capital World Investors, have a potential sale of the company in mind? The market clearly believes that the company could be sold any day; rumors about a deal have repeatedly driven the stock up and down in recent months.

A deal for Palm could make sense — at least, that’s what nearly every tech and telecoms banker I speak to seems to think. As for who would make a good fit, there is a list of potential suitors, of which Finnish cellphone giant Nokia may be the one who needs it most.

“The three companies driving the future of mobile computing — Apple, Android and Palm — are all in Silicon Valley,” Eiswert said (BlackBerry maker RIM doesn’t fit his bill because they make 2.5G phones that have less processing power than the newer smartphones). “Nokia doesn’t have the software or expertise… they really have to reinvent themselves. If we wake up tomorrow and Nokia buys Palm, for $3 billion or $5 billion, it doesn’t matter, Nokia’s stock price (will) go up.”

Other potential buyers of Palm include PC maker Dell, which is testing the mobile phone market with its own device, but it  may need to step up its game to gain even reasonable market share.

Then, there are the Korean phone manufacturers, Samsung and LG. I was just reading an article in the March 1 issue of Bloomberg BusinessWeek that says Korea may be “losing its edge in the international market, despite its reputation as the epicenter of digital cool.” Samsung and LG just don’t have the smartphone software to compete, which is a growing concern for the country, the article states. Could they be interested in acquiring Palm too?

Photo: Palm.com

With the unified search audiences of Yahoo and Bing, Yahoo’s sales team can do its job better by making the consumer experience more relevant as well as  improving the return on investment for advertisers and publishers, she said. “The more search queries you have in a single marketplace, the more the (search) algorithms can refine themselves… (bringing) more revenue per search for the publisher.”

That’s good news for members of the Yahoo newspaper consortium, Schneider said. Since these dailies are Yahoo’s search partners, the Microsoft-Yahoo alliance increases their returns and revenue as well. She estimated that in 2009, the partnership brought the newspaper industry $100 million in revenue, and “that’s just the tip of the iceberg.” But she declined to say how much Yahoo makes from the newspaper consortium.

MetroPCS, a Dallas-based provider of low-cost mobile phone
service, has retained JPMorgan Chase & Co <JPM.N> and Credit
Suisse <CSGN.VX>, the sources said.

Leap, which also provides low-cost wireless service, has
formed a three-member committee to explore a sale of itself,
other sources told Reuters on Feb. 1.

The Leap committee hired Goldman Sachs <GS.N> and Morgan
Stanley <MS.N> as advisers to gauge the interest of several
potential buyers, including AT&T Inc <T.N> and Verizon
Wireless, a joint venture of Verizon Communications <VZ.N> and
Vodafone <VOD.L>, other sources told Reuters on Feb. 1.

T-Mobile USA, the No. 4 U.S. mobile service, also could be
interested in Leap, two of the sources said on Thursday.
T-Mobile’s parent Deutsche Telekom <DTEGn.DE> is mulling
options for T-Mobile, including a sale, initial public offering
or spin-off, other sources have previously said.

Leap has not begun a formal sale process or set a deadline
for submission of initial offers, one source said.

The sources spoke on condition of anonymity because Leap
has not publicly announced that it is exploring a sale.

MetroPCS, Leap and T-Mobile representatives were not
immediately available for comment. Representatives for the two
investment banks declined to comment.

In 2007, Leap had rebuffed a MetroPCS acquisition offer
worth $5.5 billion at an exchange ratio of 2.75 MetroPCS shares
for each Leap share.

But any new offer from MetroPCS would probably be far
lower, since Leap’s market capitalization is now just over $1
billion.

Investors and analysts have long expected that Leap and
MetroPCS will join forces as competition in the wireless sector
intensifies, with Verizon and AT&T owning the lion’s share of
the market.

MetroPCS and Leap have very little network overlap and both
companies sell low-cost, unlimited monthly phone service plans
to people who pay in advance and do not commit to longer-term
contracts. Analysts say that makes them a good fit.

Leap shares closed up 3.3 percent at $14.51 on the Nasdaq.
MetroPCS shares closed up 2.8 percent at $5.94 on the New York
Stock Exchange.
(Reporting by Anupreeta Das and Sinead Carew; Editing by Tim
Dobbyn)

Bankers, telecom company executives and private equity types echoed these views at a Feb 9 event on deal-making in telecoms and media in 2010, organized by the Argyle Executive Forum. Yes, the U.S. wireless sector will likely see some deals born of necessity, but that doesn’t spell the return of M&A to the telecommunications sector as a whole, panelists said at the half-day event in New York. Rural telecoms companies could also see more consolidation, some of the panelists said, as these providers merge to cut costs and keep growing even as they lose traditional phone users.

A combination of Leap Wireless and MetroPCS makes “obvious sense,” said Prem Parameswaran, who heads Deutsche Bank’s telecoms group for the Americas.  Because Leap and MetroPCS operate in certain markets that cable operators provide their services in, a cable company like Comcast could potentially be interested too, he suggested. However, Parameswaran didn’t get around to explaining how this might sit with Comcast’s current investment in emerging provider Clearwire.

Parameswaran said that the financing markets have opened up again after the credit crisis, and “a byproduct of financing is M&A,” which means more deal-making in the offing, although he questioned how sustainable current financing levels are.

Julie Richardson, a managing director at Providence Equity Partners, said: “2010 won’t be a banner year for M&A. There is still a lot of uncertainty out there.” But she did list the wireless sector as likely to be the most active. “It is going to be a really tough business in voice mobile telephony… those who don’t have differentiated positions will have to ask themselves, ‘How do I make myself stronger?’.”

Even in such a competitive market, Davis Terry, a former UBS banker and founding partner of Tap Advisors, saw little possibility of M&A activity. “The four big guys (AT&T, Verizon, Sprint and T-Mobile)… (it’s) unclear whether any of them could do anything with each other… the smaller guys, with the exception of Leap and Metro, (there are) not many of them left,” he said. “In the U.S., it’s going to be lean for a while, a few deals here and there but nothing like the old days.”

International markets offer some hope, at least for private equity. Recently, a group led by Quadrangle Capital, the buyout firm co-founded by Steven Rattner, invested $300 million in India’s Tower Vision, a manager of wireless towers. In general, mobile infrastructure investments in developing countries is an attractive area for private equity, the panelists said.

“When you look at China and India, that will be the predominant (area) for us,” Providence’s Richardson said. Terry also agreed that Asian countries top the list of preferred international destinations, but added that the growth of Africa’s wireless markets also present attractive investment opportunities.

Of course, it all depends on whether the credit markets hold up. “Private equity will turn somewhat on the strength of credit markets,” said Andrew Frey, managing principal at Quadrangle. “If that persists you’ll likely see a pick up in private equity activity.”

(Additional reporting by Sinead Carew)

Security software is a critical component of the “stack” of
applications used by companies to store and manage networks and
data, making software makers from McAfee Inc <MFE.N> to upstart
Sourcefire Inc <FIRE.O> attractive targets.

“There is a clear trend toward convergence of technologies
in the data center, and security is front and center,” said
Daniel Ives, an analyst at FBR Capital Markets.

He and other analysts said security spending by companies
held up well during the recession even as overall IT budgets
shrank — a mark of resilience that only adds to the lure of
security companies. “Security really has the attention of CIOs
(chief information officers),” Ives said in an interview.

Faced with slower growth in traditional businesses, major
tech companies have stepped aggressively into new markets and
on each others’ toes, particularly in the data center.

Analysts and bankers said the next round of dealmaking will
be driven by the desire of companies such as HP, International
Business Machines Corp and EMC Corp <EMC.N> to package
software, services and hardware for corporate clients.

With a market value of $6 billion and a business focused
purely on security software, McAfee is a prime takeover target,
they added.

McAfee’s chief executive, Dave DeWalt, has steered the
company through double-digit sales growth in recent years, and
is viewed as a savvy dealmaker and prize addition to any
software leadership team. DeWalt used to work for EMC, which he
joined after selling it his previous company, Documentum.

Bankers also named security companies Websense Inc
<WBSN.O>, PGP Corp, SafeNet, Sophos, Sourcefire <FIRE.O> and
SonicWALL Inc <SNWL.O> as acquisition targets.

“Larger companies like IBM, CA Inc <CA.O> and EMC want to
enhance their security offerings,” said a banker at a private
equity firm that owns a security software company, adding, “We
continue to see a lot of interest” from potential buyers.

COULD HP BUY MCAFEE?

Among the large tech companies most keen to buy a security
company is HP, two bankers and a person close to the company’s
strategy said.

Since buying Electronic Data Systems for $13 billion in
2008, HP has focused on adding to its software and networking
offerings. Last year, it bought 3Com for $2.7 billion and had
$13 billion in cash and securities as of Oct. 31, 2009.

Buying a McAfee or Checkpoint Systems Inc <CKP.N> would
allow HP to bundle security software into the computers it
sells to consumers, and enhance revenue through software sales
to companies.

It’s an idea many bankers have pitched to HP CEO Mark Hurd
over the years. “Hurd is an aggressive guy and security is one
of those areas he is keenly interested in,” said the person
close to HP.

HP declined to comment on Wednesday.

If it chose to sell, McAfee could also draw interest from
other technology companies, including data storage giant EMC,
which bought RSA Security for $2 billion in 2006.

McAfee was not immediately available for comment.

Ken Allen, a portfolio manager at T Rowe Price, said he
expects more consolidation over the next two to three years,
with at least one large security company getting acquired.

Security companies typically have a recurring revenue
business model that ensures strong cash flow and makes them
attractive to buyers, he said.

“Of the big three — Symantec, Checkpoint and McAfee — I’d
say the greatest likelihood of a takeout is McAfee,” said
Allen, whose firm owns McAfee shares.

Symantec Corp <SYMC.O>, which has grown through dealmaking
including its $13.5 billion purchase of Veritas in 2004, is
likely to keep its role as an industry consolidator, especially
by buying niche players that focus on a single application.

But with a $14 billion market value, Symantec could also
become a deal target for a larger company, bankers said.
(Reporting by Anupreeta Das; Editing by Tiffany Wu)

AOL, which became an independent company once again in December after Time Warner Inc spun it off, is trying to reshape itself as an online content and advertising company under chief executive Tim Armstrong, a former Google Inc executive.

AOL executives said on Wednesday the company will exit some international markets as it invests in the creation and distribution of blogs, videos, photos and other online programing. It is also building its related Web search and advertising business.

The company said it is likely to sell assets outside its focus, even as it buys up businesses in its chosen markets.

Last month’s $36.5-million acquisition of StudioNow Inc, a video production company, is an example of the types of deals in which AOL is interested, Armstrong said on an earnings call.

NET INCOME, REVENUE

Net income for AOL’s fourth quarter was $1.4 million, or a penny a share, compared with a loss of $1.9 billion, or $18.52 a share, a year ago when Time Warner wrote down its value through a $2.2 billion charge.

Excluding per-share restructuring and other costs, AOL earned 71 cents per share, beating the Wall Street consensus estimate of 62 cents per share, according to Thomson Reuters I/B/E/S.

Revenue fell 17 percent to $809.7 million as it lost subscribers in its dial-up access business, and earned less revenue per search query in its online advertising business.

Wall Street analysts were expecting AOL to earn revenue of $763.5 million, according to Thomson Reuters I/B/E/S.

Fourth-quarter advertising revenue fell 8 percent to $471.6 million and subscription revenue fell 28 percent from the year-earlier quarter to $307.4 million. AOL subscribers make up the bulk of visitors to AOL websites.

Credit Suisse analyst John Blackhedge said in a research note that the results were “encouraging” for AOL’s new management, but added that the company’s performance in 2010 would be key to its turnaround story. Blackhedge has an “underperform” rating on AOL.

AOL’s shares rose 52 cents to $25.17 on the New York Stock Exchange.

(Reporting by Anupreeta Das; Editing by Derek Caney and Maureen Bavdek)