PALM shares are up 70 cents to $12.15 and call activity is off the charts amid renewed takeover speculation Friday morning. Shares opened steady and have set a series of new session highs on renewed talk Nokia (NOK) might bid for the mobile device maker. Call buyers are biting. Total call activity in PALM is running 15 times the expected for the first hour, with an impressive 33,000 contracts already traded.
What are the odds that Nokia might bid for PALM? This is not a new rumor.
Forbes, September 24, 2009: ÃƒÂ¢Ã¢â€šÂ¬Ã…â€œPalm announced quarterly earnings last week that exceeded expectations, but its guidance was dramatically below the consensus outlook. To add even more pressure on the stock price, Palm announced a 16 million share secondary offering, reflecting its need for cash to support product development and launches. The stock dropped after the announcements, much to the satisfaction of the 30% short interest in the stock.
Then a curious thing happened to Palm’s stock price–It began to appreciate from the $13.86 on Thursday after the earnings announcement to $17.47 on Tuesday, an impressive 26% gain in three days. Rumors were circulating that Nokia would buy Palm forcing shorts to cover. Then, on Tuesday after the close, Palm priced its secondary offering, increasing the size from 16 million shares to 20 million shares, at $16.25, a mere 4.8% discount to the close on Tuesday and a 17% premium to where the stock traded after its disappointing guidance.
ÃƒÂ¢Ã¢â€šÂ¬Ã…â€œIf the rumors prove true and Nokia is indeed interested in Palm, then Palm’s stock price may still be interesting, based on an acquisition premium.ÃƒÂ¢Ã¢â€šÂ¬Ã‚Â
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Yet, even after todayÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s gains, PALM shares are down more than 30 percent since the last time the rumors were whirling in late September. In addition, with the options expiration just 5 trading days away, there is ample reason to be suspicious about any merger speculation — especially when it includes a big widely held name like PALM. A lot of people probably want to see the stock move higher ahead of the November expiration, or else a boatload of November calls, with strike prices ranging from 12.5 to 30, will expire worthless.
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About the Author (Author Profile)
Frederic Ruffy is a well-known trader, writer, and strategist who has spent years educating investors and creating intelligent, insightful, unbiased market observations that are frequently cited by the Wall Street Journal and other financial publications. As senior analyst, Fred provides frequent and regular notes and daily updates for activity of interest.