Palm, Once Worth More Than Ford, Drops on Split
Plan (Update2)
By William Selway
Santa Clara, California, July 29 (Bloomberg) -- Palm Inc. shares dropped 13
percent after the maker of hand-held computers, once worth more than Ford
Motor Co., said it will ask investors to swap each share for as little as a 20th
of one.
The reverse stock split would slash the number of Palm shares on the market,
lifting the price of those remaining. The shares, which peaked at $165 on their
first day of trading in March 2000, dropped 18 cents to $1.18 as of 4 p.m. New
York time on the Nasdaq Stock Market. Palm's market value has shrunk from
$53 billion in March 2000 -- topping Ford's $50 billion at the time -- to about
$684 million.
``There is a negative stigma associated with reverse splits,'' said Ray Sharma,
an analyst with BMO Nesbitt Burns Inc. who has a ``market perform'' rating on
Palm. ``Those people who look at them from a negative perspective think
companies that do reverse splits tend to have fundamental problems.''
Palm, the world's largest maker of hand-held computers, has racked up
$476.2 million in losses since the quarter starting December 2000, sending its
stock down 97 percent since then. Palm said Friday it will ask shareholders in
October to give the board approval to exchange 10 to 20 shares for one.
Price Boost
The measure is intended to raise the stock price before a breakup into two
separate companies. At current prices, dividing Palm could lead to two
companies that each trade below $1 a share, the minimum bid required by
Nasdaq.
``They've done it as a pre-emptive move,'' said Paul Coster, an analyst with JP
Morgan Securities Inc., who has a ``long-term buy'' rating on Palm. ``It's either
now or later.''
The total market value of Palm wouldn't be changed by a reverse split. Palm
had about 579.2 million shares outstanding as of May 31.
Other once-soaring companies have announced reverse splits to lift sagging
share prices. Web-site designer Razorfish Inc., which traded as high as
$1,708.12 during the peak of the Internet boom, this month exchanged 30
shares for one after it was faced with being delisted from the Nasdaq Stock
Market. Software maker Commerce One Inc. on July 17 said it will ask for a
1-for-10 split. The shares have since fallen 29 percent to 46 cents.
Eight of 10 companies that reduce the number of shares through reverse splits
have smaller market values a year later, Coster said, largely because those
companies' fortunes were already waning. Coster said he wouldn't include
Palm in that category.
``It's not a broken company with some rubbish for a product,'' Coster said. ``In
these market conditions, they are not given the benefit of a doubt.''
Two Palms
As soon as this year, Palm intends to divide into separate companies: one for
producing its operating-system software and another for making computers.
The split may help to attract investors who typically spurn stocks that trade for
less than $5, Palm spokesman Jim Christensen said Friday.
The breakup plan is intended to increase software sales by attracting
licensees who may now be hesitant to work with their larger rival, Palm has
said. It may also lift Palm's market value because many software makers
trade at a higher price compared with their earnings than do hardware
companies.
Palm's operating system, licensed by companies including Handspring Inc.,
competes with Microsoft Corp.'s Pocket PC software.