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The rumor mill started last Thursday, after The Wall Street Journal reported that someone "who has spoken" with Michael Dell stated that Dell was looking to acquire a "significant-sized company." Hours after the Journal piece, a post from a blog in The Dallas Morning News pegged Palm as a natural target for Dell. But an even bigger boost to the buyout rumor came on Friday, from a Collins Stewart analyst note that said Dell swallowing Palm would "be born of mutual necessity and represent a strategic fit for both parties."
That line of thinking just may sound like it makes sense, but there's a small problem: There's no evidence that Dell is even considering a bid for Palm. Fellow Fool Rick Munarriz was quick to swat down the rumors last week, as did The New York Times on Monday, but rumors have a pesky way of sticking around.
So why did Palm's shares rise 21% last Thursday and Friday, when the buyout chatter was picking up steam? As I see it, it's another example of how stock prices can move on baseless speculation. There wasn't any hard information to "price in" -- just a vague report that Dell's looking to buy, has nascent smartphone ambitions, and that Palm could be a possible fit. (And to be fair, surely a portion of that gain bled over from enthusiasm for Jon Rubinstein taking over as CEO.)
Why it won't happen
Look, I think WebOS appears to be a fantastic platform and holds a lot of value for Palm. It's undeniable that the company is worth significantly more today than it was during its doldrums in December, when its share price was a tenth of what it was on Tuesday.
However, Dell and Palm don't look like a match made in heaven. Is stodgy old low-price Dell really willing to pay up heavily for an unproven platform that has been on the market for a couple of weeks? I just don't think so, at least not at the price it would take to get a deal done now. While a company of Dell's size brings with it a well-established corporate user base, along with its own manufacturing connections and the opportunity to scale up production and sales, you have to wonder whether the benefits are worth it. Remember, Dell would be buying Palm largely on the strength of its software -- not exactly Dell's strong suit.
So instead, let's look to the information we do have. For one, Dell sold $1 billion in bonds last week. That lends support to the Journal's reports that it's looking to buy. But if you actually read past the second paragraph of that story, insiders reportedly said that Dell was looking to acquire data storage and tech services companies. How that morphed into Palm buyout rumors is hard to explain.
As pointed out in one comment on Rick's Dell article, companies like 3PAR (NYSE: PAR ) or Isilon (Nasdaq: ISLN ) would be much more reasonable choices for Dell, with their emphasis on storage technology. Or here's another idea: QLogic (Nasdaq: QLGC ) , a company that makes products that help servers communicate and would add far more to Dell's core business.
Of course, I don't have any specific knowledge about whether Dell is actually interested in any of these three companies either. But as we saw last week, that never stopped anyone from engaging in wild speculation.
Further Foolishness on all things Dell and Palm: