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Palm's Directors Call for Reverse Stock Split

The Board of Directors of Palm, Inc. has just unanimously approved and recommended to shareholders a proposal that would effect a reverse stock split of Palm's common stock. If approved by shareholders at the company's annual meeting in October, the Board would effect a split somewhere between one-for-ten to one-for twenty sometime before April 1, 2003. This means shareholders would exchange between 10 and 20 shares for 1 new one, which would be more valuable.

Palm shares have been below $2 for several months and this reverse stock split could jump that up to $15 to $30.

Palm's board believes this move is necessary as part of spinning PalmSource off as a separate company.

"Having the flexibility to effect a reverse stock split is another step toward creating two independent, well capitalized companies -- each a leader in its business," said Eric Benhamou, Palm chairman and CEO.

Thanks to Gavin Maxwell for the tip. -Ed

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could jump but the value is the same....

I.M. Anonymous @ 7/26/2002 6:53:54 PM #
Even if the proce jumps to $30... You stock is stilll worth only $1+....
RE: could jump but the value is the same....
I.M. Anonymous @ 7/26/2002 7:02:11 PM #
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.

RE: could jump but the value is the same....
big_raji @ 7/26/2002 7:06:14 PM #
Sounds right.

From what little I know about the stock market, a stock split usually splits each share into 2, effectively cutting the price per share by half. This usually causes an increase in purchases over the next short while, which increases the price of the stock again, nearly to the old level.

If there's a reverse stock split, wouldn't be a bad thing? Eventually, those $30 shares will dwindle back down again to the lower numbers, wouldn't they?

---
For all the people that have suffered through my "What's Wrong With This Picture" Signature:
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RE: could jump but the value is the same....
ardee @ 7/26/2002 7:09:52 PM #
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?


RE: could jump but the value is the same....
mikemusick @ 7/26/2002 7:12:44 PM #
There are a couple of probable strategies here. First is to make the stock price more attractive in the eyes of big buyers; institutional investors tend to avoid "penny" stocks. Second is to insure against de-listing in down markets (like right now) should market conditions and not your own problems push your per-share price below $1. De-listing is usually fatal.

RE: could jump but the value is the same....
I.M. Anonymous @ 7/26/2002 7:35:16 PM #
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!

RE: could jump but the value is the same....
I.M. Anonymous @ 7/26/2002 7:46:53 PM #
Simply sounds like a ploy to keep off them from being moved to the BBs. I wonder what they know that we don't (yet)...
RE: could jump but the value is the same....
crustyedgeofinnovation @ 7/26/2002 7:54:32 PM #
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.



RE: could jump but the value is the same....
I.M. Anonymous @ 7/26/2002 9:09:55 PM #
wow, after the reverse split, Bill Gates might be able to purchase BeOS IP for the sum of his Lunch money. (say in the range of less than $80M, definitely a bargain for microsoft to get the BeOS IP)

that would be funny.

Why the Riversed Split?
I.M. Anonymous @ 7/26/2002 10:58:56 PM #
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.
RE: could jump but the value is the same....
wilco @ 7/27/2002 10:56:18 AM #
It's pre-emptive strike against possible delisting from Nasdaq which had a $1 limit for listed shares. Palm's closing price of $1.36 is very near that mark. And my guess is that it will get worse before it's get better. With OS 5 units not available yet, the financial results (for this quarter) will be very nasty and the stock could easily fall another 20-30%. Long term however, Palm (especially Palmsource) is rosier, BUT Palm is not Microsoft(with it's deep pockets), and any more wrong move (such as the m505 debacle) could prove hard to recover from.

RE: could jump but the value is the same....
crustyedgeofinnovation @ 7/27/2002 11:31:47 AM #
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.

RE: could jump but the value is the same....
Ed @ 7/27/2002 1:12:36 PM #
crustyedgeofinnovation, that was a very well written analysis. Thanks.

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News Editor
RE: could jump but the value is the same....
I.M. Anonymous @ 7/28/2002 6:43:54 PM #
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.

Not an Auspicious Sign

I.M. Anonymous @ 7/26/2002 7:31:29 PM #
This tells the me that the Board/Senior Management has little faith that they can substantially raise the stock price by GROWING EARNINGS any time soon.
RE: Not an Auspicious Sign
I.M. Anonymous @ 7/26/2002 7:57:54 PM #
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.


RE: Not an Auspicious Sign
drw @ 7/26/2002 8:03:23 PM #
You're right. However, right now, not only are investors throwing out the baby with the bath water, they're throwing out the bathtub, curtain, tile, fixtures, and plumbing as well. Article doesn't meantion what stockholders will get when PalmSource is spun off. Presumably they will get some shares of PalmSource and retain their Palm shares. However, doing such a high multiple (1 for 10 or 20) doesn't bode well for the next nine months. It could very easily go from 30 back down to 5 since who would buy it knowing that they are so pessimistic about their own near term future.

If both companies survive (PalmSource better survive or be bought out (which, if that's going to be the case, why spin it off in the first place?)) then perhaps the time of the spinoff would be a buying point since both would be severely deflated.

Perhaps they should reconsider the whole thing. Do you hear any of the PalmOS device makers crying "foul" over Palm using undocumented features and/or hooks in the OS to make its Palms run faster than other companies' Palms? No.

Look at IBM, Microsoft, and Apple. IBM created the "pc compatible" industry by making it open to clones, but lost command of it. Microsoft has done well with it's OS monopoly. Apple owned its OS and hardware and has done poorly by not letting others make Mac clones. Palm has made it's hardware open, so using the same analogy its hardware company should suffer post spinoff while PalmSource should do well since it retains the OS monopoly. That's provided PalmSource gets busy making killer apps it can sell alongside it's OS as it won't be able to live on that alone.

In the end, the Palm hardware company should lose command of the direction and become a part of a consortium which would decide what new stuff gets incorporated like on the PC side, there's consortiums that work out standards for USB, firewire, AGP, etc and it's up to Microsoft to add support for these new things.

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David

RE: Not an Auspicious Sign
I.M. Anonymous @ 7/26/2002 11:42:59 PM #
"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?

RE: Not an Auspicious Sign
I.M. Anonymous @ 7/27/2002 11:00:05 AM #
Double their earnings...not losses
RE: Not an Auspicious Sign
Ed @ 7/27/2002 1:08:15 PM #
> 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

RE: Not an Auspicious Sign
I.M. Anonymous @ 7/27/2002 1:42:45 PM #
Their earnings have been negative numbers. Maybe you want to say that they need to double revenues without a proportionate increase in expenses.
RE: Not an Auspicious Sign
I.M. Anonymous @ 7/27/2002 8:00:08 PM #
This thread is not about Hanspring or Sony, so there is no need to mention losses.
RE: Not an Auspicious Sign
I.M. Anonymous @ 7/28/2002 6:43:04 PM #
<>

You have to have *earnings* to double them.

Not good news for employees...

I.M. Anonymous @ 7/26/2002 11:42:18 PM #
What hasn't been said here is that a reverse stock split is terrible news for employees who hold stock options. Here's the way it works:
1) on 1/1/x, you were granted 10,000 options at 5$ for a total value of 10,000x$5=$50,000.
2) on 1/1/x+1, the company does a reverse split 1 to 20, so one would think that you now have 500 options at $5, which is not too bad if the price is say $20...well in fact, NO, because your options must still have a value of $50,000, so you're stuck with 500 options with an exercise price of $100 a piece !!!!!!!! In other words they're worthless.

Now of course you can grant your employees new options, but the trick is that you start your vesting from scratch (unless of course they give you vested options, but that hits the expense bottom line pretty hard so it's rarely done).

Food for fought, Palm employees reading this !

RE: Not good news for employees...
I.M. Anonymous @ 7/27/2002 12:25:15 PM #
Stock splits have no effect on the value of the options. Think about it. If the strike price was $5 before and they do a 1 for 20 split, the strike price becomes $100. In your mind, they are worthless at this point. Why not before? The appreciation in the value of the company required to have the options in the money is EXACTLY the same. If the strike price is out of reach before the split it was out of reach beforehand as well.
RE: Not good news for employees...
I.M. Anonymous @ 7/27/2002 12:50:41 PM #
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 ?


RE: Not good news for employees...
I.M. Anonymous @ 7/27/2002 5:38:44 PM #
No, issues of leverage are not important in this.

As for the psychology, in my opinion this is not a good sign for the company, though not because it is material information. As I've said, it is mere bookeeping. Its value comes as a signal to fears of continued deterioration in their business.

RE: Not good news for employees...
I.M. Anonymous @ 7/27/2002 8:02:14 PM #
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.

Bad signal

I.M. Anonymous @ 7/27/2002 2:34:22 AM #
A reverse stock split is a signal from management that they have no expectations that the stock price will improve anytime soon. I can't think of a worse message for potential investors. That's why the price will go down a lot.
RE: Bad signal
drw @ 7/27/2002 2:45:53 AM #
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

RE: Bad signal
I.M. Anonymous @ 7/27/2002 9:55:21 AM #
Well, the point is that OS5 will NOT make or break the company. It's an incremental development that does not create any new market. The best that can be hoped for in a new OS is that a modest percentage of existing users will upgrade within the next year or so (perhaps 15%).

Why do you think Palm and Handspring are trying to move into wireless so much? They want to create a new market. The margins in the PDA business suck. You get $99 to $400 retail for the hardware and don't sell any more peripherals to the average user. You also end up taking lots service calls for these complex devices from neophyte users.

Everybody I know already bought a PDA. Whoopee.

PALM OS Everywhere?
I.M. Anonymous @ 7/27/2002 12:14:11 PM #
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??

RE: Bad signal
I.M. Anonymous @ 7/27/2002 10:05:21 PM #
If you think that Palm OS 5 devices are not critical to the future of Palm then you are not paying attention. The current economic downturn has actually been in Palm favor, slowing down major corporate development of PDA applications. Palm OS 5 devices are critical in fighting the mistaken mindset by many CTOs that the PocketPC provides a better platform for corporate development because "they are faster and have more memory". Palm OS 5 devices will be critical in turning this opinion around and based on what I saw at Palm Source, should show just how much fat is in PocketPC PACE or no PACE. Believe me I do corporate development and the fight has been and will continue to be what platform the companies pick.

Maybe if they led instead of following?

I.M. Anonymous @ 7/27/2002 7:35:46 AM #
The problem is that the times changed faster than the glacial speed of Palm's management.


Time, Energy and Money

I.M. Anonymous @ 7/27/2002 10:09:57 AM #
Few people outside of Palm recognize how much top management energy was spent launching Palm away from 3COM and then splitting Palm in two.

The management of Palm ought to spend their energies developing products rather than spending time playing with stocks and organization.

RE: Time, Energy and Money
I.M. Anonymous @ 7/27/2002 11:03:51 AM #
Agreed - very well said.

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

RE: Time, Energy and Money
I.M. Anonymous @ 7/28/2002 11:49:25 PM #
This I do agree. Instead, of removing a few zeros off the # shares holdings, they should spend that enery and time to make a better & affortable Palm. To out do Sony & PPC2002 devices.

Instead of putting up a show like this. Anyone with a calculator will tell that the nett stocks holding you have still do not change.

RE: Time, Energy and Money
I.M. Anonymous @ 7/29/2002 12:29:10 AM #
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 ...

Reverse stock splits NEVER work

I.M. Anonymous @ 7/27/2002 12:35:09 PM #
Reverse stock splits are usually the final gasp of a dying company, but I find it hard to believe that Palm will go away. Usually, after a reverse split, the new higher stock price immediately falls to the levels near where the price was before the split. This really screws over the shareholders, but probably would make Palm a very easy target for acquisition. I say, wait for the split, wait for the price to go back down, buy up some shares, and then wait for somebody like Sony, Apple, whoever to buy the company.
RE: Reverse stock splits NEVER work
I.M. Anonymous @ 7/27/2002 5:28:47 PM #
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 !
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