DealZone

If you want to take a bite out of Apple’s piece of the staggeringly huge (but difficult to quantify in $$$ terms) smartphone market pie, you’d better either have the magical new “thing” or be willing to spend to buy it.

As Anupreeta Das reports, Palm – one of the stalwart originals in the mobile handset space — has remade itself into a terrific target with the success of its Pre. Palm’s stock got a jolt this week on talk that Nokia could be considering a bid. But as she explains, Palm may prove to be too pricey a purchase, even for those with deep pockets.

Since introducing the Pre, Dell, Microsoft, Nokia and Motorola have been mentioned as possible suitors. If one of these cash-rich companies was to bid for Palm today, it would be targeting a stock that has quadrupled this year. Complicating matters, “details on how many units it has sold are skimpy, making it difficult to value the success of Palm’s turnaround story,” she reports.

Palm’s market capitalization is $2.4 billion. Based on the average 34 percent premium that technology, media and telecommunications companies have been sold for this year, according to Thomson Reuters data, this means a price tag of about $3.2 billion.

Dell is already in the early stages of buying up Perot Systems, but will still have nearly $7 billion in cash on hand should it choose to go on a spree. Microsoft, while a cagey customer, as shown in its dealings with Yahoo, has buckets more. For big tech players, the price itself is not the problem.

Sometimes it’s easy to sniff at $70 million, particularly when you have government loans of $80 billion to repay (while the total size of the AIG bailout was closer to $180 billion, much of that consists of toxic mortgage assets that are now owned by U.S. taxpayer). So news that AIG has agreed to sell its Hong Kong consumer finance and India-based IT services units for that amount may seem to be a paltry offer for discussion, even in the blogosphere.

It’s not as if the well is dry on the M&A front. Microsoft and Nokia are set to announce a tie-up of some sort – assumed to have to do with office apps on Nokia phones – and UBS is inking a deal to get it out of the tax-haven doghouse with U.S. authorities.

But spare a thought for poor AIG nonetheless. AIG Financial Products said this week it had completed the sale of its energy and infrastructure investment assets for net proceeds of about $1.9 billion – better than a 1 percent chunk of its total bill to U.S. taxpayers, but the division blamed for so much still has mountains of assets to unload. And it has stepped up plans to list its Asian insurance unit, American International Assurance, in Hong Kong after failing to find a buyer for a large stake in it earlier this year.

Microsoft and Yahoo finally tied a knot, but not the knot that Yahoo shareholders have long yearned for. The new-economy giants inked a 10-year Web search deal in a bid to take on Google. Google shares barely budged but Yahoo’s sank more than 6 percent as the deal stopped short of combining display advertising businesses.

Back when this deal was all the rage, it was a story of egos. Then Yahoo CEO Jerry Yang was ultimately thrown out for not getting a deal done. Veteran agitator Carl Icahn was in top form, blasting Yahoo from the Street. Now under the new management of Carol Bartz, expectations were slowly rising that a broader deal might get done.

The question now is whether the market that had for so long hoped for a big deal will see this one as at least a step in the right direction.

Broadcom’s tender offer for Emulex shares may be techland’s first hostile deal this year, but unwanted moves seem to be fairly popular across the rest of the M&A landscape. At any rate, more popular than last year.

This year, 30 percent of all deals involving U.S. public companies have been “unfriendly,” compared with 21 percent in the same period last year, according to FactSet MergerMetrics data. In absolute numbers, there were more such deals last year (23) than this year (18).

In its definition of “unfriendly” deals, FactSet includes both unsolicited offers, in which “the acquirer has publicly disclosed its offer to acquire the target,” and hostile deals, in which “the target’s board has formally rejected the unsolicited offer and the acquirer has continued to try and get control of the target.”

If the Sun-IBM deal is truly dead, and Sun’s reported abandonment of talks is not brinkmanship, then the maker of Java multimedia software could end up with all the kick and excitement of yesterday’s decaf. Among the reasons cited by Sun for walking away, according to The Wall Street Journal, was IBM’s failure to guarantee it would go through with a deal in the face of regulatory challenges. With the mauling courtroom battles that have bloodied the M&A landscape of the last couple of years, it’s not hard to see why Sun would push for such protection.

But if it turns out Sun also played hard to get over price, which seems more likely, Sun may find itself in Yahooland before too long, with a share price in the tank and alternative deals drawing the kind of regulatory scrutiny that Sun says it is trying to guard against.

Sun was said to be unhappy with IBM’s offer of $9.40 per share, which was a premium of up to 89 percent on Sun’s shares before deal talks were first reported last month. Deals getting done these days are far less juicy, and as Peter Falvey, technology banker at Revolution Partners, tells us, Sun is coming out of this looking a lot less sexy than it might have. “Sun is now sort of damaged goods,” he said. “If IBM got under the covers and didn’t like what they saw, then what does that mean for other potential buyers?”

(Refiles to correct Donahoe's first name to John.)

To sell Skype, or not to sell Skype. That is the question for eBay, and Wall Street has diverging opinions on whether the San Jose company will or won't unload its Internet telephone service.
    
Skype was acquired under the reign of former CEO Meg Whitman (now a California gubernatorial hopeful) and touted as a nifty way for eBay's millions of sellers and buyers to connect. That reality never materialized, and current CEO John Donahoe has acknowledged that synergies between eBay and Skype are nonexistent.
    
Still, Skype is on a tear, growing at double digits and adding 350,000 global users a day. The five-year-old company logged $551 million in revenue in 2008 -- that number is expected to double by 2011 -- and is now a subject of great speculation by analysts, who wonder whether eBay plans to spin it off, or hold it close. 
                              
Cowan and Co's Jim Friedland, for one, thinks it's for sale. Writing in a note the day after eBay held an analyst presentation to outline the company's three-year plan, Friedland said it appeared "eBay was using the Skype discussion to trigger a bidding war between Google and Microsoft."
       
"We believe the asset would be attractive to both Google and Microsoft to enhance their web-based enterprise application services. In addition, Skype's user base of 405 million, which is particularly strong internationally, would likely strengthen Google's dominant position in the consumer web app market."

But Bernstein Research's Jeffrey Lindsay did not see it that way: "We think the dearth of buyers such as Google or Microsoft will mean that eBay is more likely to spin out part of Skype to the public (like Time Warner did initially with Time Warner Cable)."
    
Huh. Donahoe, incidentally, has said only that eBay will do what's best "to maximize Skype's potential and value."
    
Deutsche Bank's Jeetil Patel opined that, since Skype is performing well, "Management should hold on to this business model" and Credit Suisse's Spencer Wang said he did not see eBay rushing to sell.
    
"While we think the company would be open to parting with Skype at the right price (currently valued at $1.8 billion on eBay's balance sheet), a divestiture of Skype does not appear imminent," Wang wrote.

(Photo: Reuters)

Microsoft’s videogame chief Shane Kim came by our New York office this morning for the Reuters Media Summit and shared his thoughts on XBox 360 sales (“cautiously optimistic”) and the outlook for the gaming industry amid the economic doom-and-gloom (“Who knows, maybe flat performance will be considered a remarkable achievement”).

He also gazed into his crystal ball and served up some insights on the trends shaping the gaming business.

Consolidation is going to continue, he thinks, especially among the smaller videogame publishers as they search for hit games while keeping costs in check.

Back in July, when Microsoft walked away from Yahoo, conspiracy theorists surmised that the software giant would eventually come back to bid again at half the price. The Chief Yahoo – that’s the title Jerry Yang is reclaiming after saying last night he would step down as CEO – is no longer in a position to block a deal, so it’s fair to assume Microsoft and its bulging mound of cash could return for another bite. 
 
Yang has been talking with the board, which includes activist investor Carl Icahn, about stepping down since before Google pulled out of a search advertising deal with his company earlier this month, according to a person familiar with the talks. 
 
Yahoo’s share price jumped after the news on Yang. That could just be relief that he is going, or it could be renewed hope of a deal. So a dealmaker could take the reins of the Internet company, which has already seen great swaths of its brain trust flee in the months since the initial Microsoft bid failed. 
 
A source said the process of finding a successor to Yang could take anywhere from four to 12 weeks, and analysts have suggested a star-studded cast of candidates, including former AOL chief Jon Miller, News Corp President and Chief Operating Officer Peter Chernin, former eBay Chief Executive Meg Whitman, former Yahoo COO Dan Rosensweig, and Yahoo President Sue Decker.
  Will Microsoft formally announce an offer for Yahoo?

Deals of the day:
* French warplane maker Dassault Aviation is in exclusive talks with Alcatel-Lucent to buy the telecoms equipment maker’s 20.8 percent stake in radar maker Thales for about 1.52 billion euros ($1.92 billion).
 
* Britain’s Carphone Warehouse may split off its telecoms arm to focus on its retail venture with U.S. group Best Buy, it said as it warned of tough trading. 
 
* British publishing and exhibitions group United Business Media, which abandoned a planned merger with UK peer Informa earlier this year, said it was buying Xinhua PR Newswire, China’s largest corporate announcement service, for $6 million in cash.

“People who know me know I don’t have an ego about remaining independent versus not remaining independent,” Yahoo chief Jerry Yang told the Web 2.0 Summit. That’s a good thing because rejection is starting to become a refrain for the Internet company. 
 
Yang must be pumped by Yahoo’s share price, which surged after a rumor posted on a blog said the company was in advanced talks to sell itself to Microsoft for $17 to $19 a share. But the blog also reported that Yang would step down as CEO. Yahoo officials later said the report was untrue, but before the open this morning Yahoo shares were still climbing.
 
Google ditched a search advertising partnership with Yahoo this week. News Corp said on its earnings call yesterday that talked-about talks with Yahoo were not happening. Microsoft walked away from a deal to buy the company in May. Yang declined to comment on Yahoo’s discussions with Time Warner about buying AOL. Failure of that deal could at least give him a chance to jilt somebody, for a change.
    
Yang says he is still open to selling to Microsoft at the right price. The question is whether the price will be as resilient as his ego.  
 
Deals of the day:
 
* Malaysia’s CIMB Bank will make an offer to buy in the market the 57.87 percent of Thai lender BankThai that it does not already own and the price is expected to be 2.10 baht per share, BankThai said.
 
* Vodafone, the world’s biggest mobile phone group by revenue, has succeeded in its bid to take control of South Africa’s biggest mobile phone operator, Vodacom Group. 
 
* Kuwait’s Mobile Telecommunications said it planned to make four to five acquisitions worth up to $4 billion before 2010 after a global credit crisis depressed asset prices for telecom firms. 
 
* North American brewer Molson Coors Brewing has emerged as holder of a 5 percent stake in Australian brewer Foster’s Group, giving it a seat at the bar amid persistent takeover talk. 
 
* Swiss bank UBS bought a minority stake in Governance Metrics International, a research advisory company specializing in corporate governance. 
 
* Russian oil major LUKOIL and Italian refiner ERG will finalize a 1.35 billion euro ($1.74 billion) deal allowing LUKOIL to break into the western European refining business, industry sources told Reuters. 
 
* British property developer and investment company Westcity said it was pulling out of the Kenny Heights mixed residential and retail development project in Kuala Lumpur, Malaysia. 
 
* Property investment and development company Town Centre Securities said it sold its 50 percent interest in a joint venture to its partner, Q-Park Ltd, for 8.7 million pounds ($13.80 million) in cash. 
 
* Dublin-based Changingworlds, a mobile phone services firm that counts Vodafone and Sprint among its customers, said it had been bought by New York-listed Amdocs for $60 million. 
 
* Susanne Klatten, Germany’s richest woman, offered to buy the rest of Altana in a deal worth 910 million euros ($1.17 billion) as the specialty chemicals maker dampened its 2008 outlook.

With tens of billions in the bank collecting dust since its failed bid for Yahoo, and the elusive promise of the Internet still beckoning, Microsoft returned to the market for Internet search businesses with a $486 million purchase of Greenfield Online, the U.S.-listed owner of European price comparison website ciao.com. The buy is meant to help lift Microsoft out of fifth place in the European search market by giving a boost to its Live Search platform. Google‘s monster lead in the search market is a whopping 62 percent and 79 percent in Europe, according to the most recent data published by Web usage tracker ComScore. Microsoft has a 2 percent market share in Europe and 9 percent worldwide, behind both Google and Yahoo. In Europe, Microsoft is also outranked by online auction site eBay and Russia’s Yandex.

Four large hedge funds, all Huntsman shareholders, have proposed a plan to finance at least $500 million of the $6.5 billion buyout of the chemical company by a unit of Apollo Global Management. Hedge funds Citadel Investment Group, D.E. Shaw & Co, MatlinPatterson Global Advisers and Pentwater Growth Fund, and as of this morning, the Huntsman family, have agreed to team up on the financing plan, but Apollo’s Hexion Specialty Chemicals unit rejected the plan last night, saying Huntsman’s increased debt and decreased earnings since the deal was struck in July 2007 would no longer make a combined company solvent. “We are not seeking to renegotiate this transaction,” Hexion responded in a statement. “We are seeking to terminate it, and obtain judicial confirmation that Hexion has no obligation to pursue the acquisition or to pay Huntsman a termination fee.”

Allianz is set to sell Dresdner Bank to Commerzbank, sources with direct knowledge of the matter say, in a deal that will fuse Germany’s second- and third-biggest lenders. The deal, to be announced as soon as this weekend, will see Commerzbank take a 51 percent stake in Dresdner and buy the rest later, the sources said. Taking over Dresdner, which analysts estimate to be worth about 9 billion euros ($13 billion), will create a group to rival flagship lender Deutsche Bank and change the face of banking in Germany, Europe’s biggest economy. It will give Commerzbank a badly needed leg up in its home market, which is dominated by state not-for-profit lenders and allow Allianz to end an unhappy marriage that unsuccessfully tried to match investment bankers with insurance salesmen. The deal is likely to result in heavy job cuts, which would have been avoided had Allianz chosen to sell to another would-be buyer, China Development Bank.