Shares of Palm Spike on Rumors of Takeover Bid

Shares of Palm Inc. (NASDAQ ALM) jumped 20% Wednesday on rumors that a computer maker was considering making a bid for the beleaguered wireless device maker.

By the close of trading Wednesday, shares of Palm soared 77 cents to $4.62 � closing at its highest level since the company reported on March 18 a disappointing forecast of slacking sales of its smartphones.

Unusual buying in Palm followed rumors that Chinese computer maker, Lenovo, has plans to buy the company.

Lenovo issued no comment about the rumor, but Lenovo CEO Yang Yuanqing told a European newspaper that management intends to conduct acquisitions in an effort to expand its mobile Internet business. The subject of the Palm takeover rumor was never mentioned. Yuanqing’s most recent comments didn’t deviate from similar comments made to the media of the company’s intentions.

Analysts clash on the veracity of the rumor, with some industry watchers say that any takeover of Palm would only benefit the company’s stockholders who are looking for an out of a troubled company. Others contend that breaking into the U.S. wireless market won’t be easy for new operators, but the purchase of Palm’s mobile operating platform and established relationships with carriers may be the cheapest and most effective way to become a player in the world’s largest economy.

“If you want a seat in the U.S. market, i.e. carrier relationships and an established brand, than you have to buy in,” said Matt Thornton of Avian Securities. “Lenovo has no shot doing it on their own.”

The possibility of a Lenovo takeover hasn’t come out of the blue. Kaufman Brothers analyst Shaw Wu had written to clients earlier of a potential Lenovo suitor, as well as other possible suitors such as Hewlett Packard, for Palm.

“Lenovo is possible, but I’m not sure they have the balance sheet for this,” Wu said. “H-P is definitely more plausible.”

The market value of Palm has decline approximately 60% in recent months due to poor sales of the company’s Pre and Pixi smartphones. Wednesday’s price spike has moved the shares of Palm back to its January 2009 trade show level, when the company introduced the Pre and new webOS mobile operating system.