Palm's Directors Call for Reverse Stock Split

I think what he is saying is that instead of having 10 shares worth $3.00 each, you would trade those 10 for 1 worth $30....you would be keeping the same value, but have less shares and each would be worth more money.

That is what I understood from it, but I don't know anything about the stock market so I could be wrong. If so, someone more knowledgable please correct me.

95% of the time, in my experience, after a reverse stock split a company's stock drops and drops, often going back to the pre-split price. I've had dozens of small stocks that did reverse splits in the past 2-3 years and it has almost always had bad results. I have seen the occasional exception, but not owned one.

Maybe Palm's reverse split will go better due to the company's fame?

Reverse splits are useful to prevent de-listing by the stock exchanges since de-listing is pretty much a fatal blow to a struggling company. I think of reverse splits as appropriate for bankrupt or nearly bankrupt companies, with K-Mart coming to mind as an example. I don't think the situation at Palm has gotten remotely close enough for Palm to be de-listed.

But the key fact, from my perspective as a shareholder, is that the value of Palm has basically been trashed. It's currently worth something like 5% of the opening IPO price and about 3% of where it was for most of 2000. Even with the down market, this drop is extreme and gives you an idea of how badly they've fumbled the family jewels. Not that Handspring has done any better.

I don't think any investors will be fooled into thinking Palm is a more valuable company by artifically inflating the price per share by a 10:1 reverse stock split. All that does is move a decimal place. It's still going to show a one year range of $11 to $82, and today it's at $13. Of course that looks pretty good compared to the high of $900 per share it will show just after the IPO (which was a ridiculous value even at that time).

I'd much rather see Palm work on recreating some shareholder value "the old-fashioned way", with leading edge products that offer more value than the rest of the field, and not through some accounting sleight of hand. Who knows, they might even be worth a legitimate $11 per share that way. What a concept!

With almost 600 million shares outstanding, Palm's value, both actual and psychological is diluted. The reverse split is necessary if it wants to comlete the public spinoff of PalmSource. Palm as a whole must give a sizable amount of its value over to the OS devision after the split, but if the stock was only trading at $1.50 before the split, then after the split, the Hardware could only be worth for example $1.00 with the OS worth 50 cents. (if the OS was deetermined to be only 33% of Palm's total value). Both companies would then have to reverse split anyways because: 1) Most stocks priced this low are not highly regarded and 2) To trade on Nasdaq, stocks must be worth more than $1. The split is not absolutely necessary because the OS could still be spun off with a few million shares prices at a higher price, 20's or 30's, but the remaining Palm would then be force to split anyways, because, barring any incredible run up in price, the stock would still be extremely low, in price value.

Opinion: I just don't know how Palm came up with these stupid idea to announce the reverse split now. There was no reason to announce it now, and the worst thing about it is that it will not even be elligible to take effect until October. I think it is almost guarenteed that we will not participate in any price rise even if the Market as a whole improves. Most companies just announce a split, and do it the next day or the next week. No, Palm announces it, then says that it will go to a shareholder vote, and it will only happen after October, if ever. The split will eventually be needed, Palm can never justify the almost 600 million shares it presently supports, so why does Eric and the gang feel that they have to get all democratic and ask the shareholders (my idiot self being one of them). While they do the vote why not ask the shareholders to vote on shaking up the management. The board of directors are a bunch of clowns, while Eric can't even pretend to be a good ring leader.

Here are my two cents on the announced reversed split. The BOD action is driven by the fact that most funds avoid holding a stock when its price drops below $10.00. Thus the PALMSOURCE IPO could not stand a chance had its implied market value was in the 1.00 -2.00 range. It is just common sense! Why now? My feeling is that the company would have done the same thing as long as PALM stock was below the $10.00 threshold. On the other hand, the latest action looks isolated from a host of other issues regarding the spin-off (still outstanding in the minds of the shareholders) and feels clearly dramatic (1:10 or 1:20) now that our valuation stands at these ridiculous levels. I hope most of you remember that stocks that fall below $5.00 per share are immune to short selling. By lifting PALMs price above this level, management unties the hands of the short sellers who can freely sell the stock short again thus creating additional downside pressure. So this is a double edged knife and it is clearly a risk!!! By proposing this action to the shareholders, management takes a gamble that markets would recover by October and that the short sellers would dissapear! In my opinion, the BOD sends a clear message here that there may be some short term turbulance in the days ahead but by October we should have weathered the storm. It is a reasonable assumption but what if they are wrong?In short, if you are in for the Marathon, stay the course and keep your fingers crossed that management's crystal ball is better than yours. If you are feeling already dizzy from the bumpy ride so far, do the honorable thing and bail out by cutting your losses short. I still believe that our brighter days are yet to come.

You are wrong about the delisting. Nasdaq has modified its rule about delisting stock traded below $1, because so many tech stocks are trading below $1 in light of the dismal performance of the overall market. At this point, the Nasdaq has only a fuzzy shell of a rule and has not been sending delisting notice to any stocks below $1 for about 6 months. Palm will not be delisted. Even the delisting process is very lengthy, taking up to 6 months, so this is of absolutely no worry. While some stocks have been delisted of late, their departure was due to other issues, such as fraud or accounting scandals. Nasdaq, still takes out the garbage, but it has stopped picking at the crumbs for now.

Nasdaq might not delist or even care if Palm goes down to $0.10/share, but the investors will. The impact of seeing Palm trade below $1.00 will probably have shareholder's selling off like rats on a sinking ship.

Agreed. But Mr Market is feeling very depressed; he is having one of his moods.

Even if Palm were to double its earnings, this may not have any material impact on its share price due to general market sentiment.

The funny thing is that, 1 year ago, people were anxious to buy stock no matter what the price. Now, people do not seem to be interested in buying stock at reasonable prices; not even stock in excellent corporations.

"Even if Palm were to double its earnings, this may not have any material impact on its share price due to general market sentiment. "

Double their earnings? You mean instead of losing $447 million over the last 12 months they lose $894 million?

> Article doesn't mention what stockholders will get when PalmSource is spun off.

Palm's BoD hasn't yet announced the details of the PalmSource spinoff.

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News Editor

This thread is not about Hanspring or Sony, so there is no need to mention losses.

I see your point, but for one thing the leverage built into an option has been taken away 500 vs 10,000 AND what are the "psychological" odds of going up to 5 when you're at 1 vs going up to a 100 when you're at 20 and going down ?

I have reviewed the terms of hundreds of employee option and stock schemes over the last 15 years. The terms such arrangements almost invariably contain mechanisms for making appropriate adjustments for such corporate action. If the option are 'under water' now, the same result would follow afterwards. If they are 'in the money' now, there will be no change due to the reverse stock split.

OS5 could either make or break the company. So called "experts" speculate that users are waiting for more powerful handhelds with OS5 to appear later this year. The key will be found in users' comments here. If the consensus is "I'm not impressed, I'll continue to use my m5xx as it serves my needs" that will be the time to start looking for PocketPC replacement programs. :-(

(full discloser: I own 200 shares of Palm as sentimental value only as it's an OS that I use every day and I view it on par with windows 3.1.. Lots of potential)

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David

In order for Palm to grow earnings substantially, they need to get the Palm OS EVERYWHERE. MS is trying to do this with WinCE - have it everywhere - in your car, TV, VCR, PDA, Phone, watch, HVAC, swimming pool robot, etc. etc. and have everything be able to talk to everything else. CHA-CHING! CHA-CHING! Can you hear the money rolling in with all of that licensing??

Agreed - very well said.

Don't forget about shopping for real estate (new HQ).

I really think they should fire some (all if possible) management people in Palm Inc. If they can't keep the company from dying why are you even here ...

True, I've never heard of a Reverse Split that works...
On the other hand it's just cosmetic for a publicly traded company.
It's a different story when a reverse split happens to a private company before a cash infusion...that's really bad news for current invsetors !