Phil Falcone's Harbinger Capital Shows Stake in Palm (PALM) ~ market folly

Wednesday, April 14, 2010

Phil Falcone's Harbinger Capital Shows Stake in Palm (PALM)

In a 13G filed with the SEC, Phil Falcone's hedge fund Harbinger Capital Partners has disclosed a position in Palm (PALM) as of April 12th, 2010. Harbinger now shows a 9.48% stake in PALM with 16,000,000 shares. This is a passive stake as they filed a 13G and if they intended to go activist they would have filed a 13D instead. This is a brand new position for them as we previously did not see it in Harbinger's portfolio. Palm essentially put itself up for sale as it looks for bidders after posting weak results in the most recent quarter.

This stake certainly plays right into Harbinger's wireless investment theme as the hedge fund recently announced plans for a 4G wireless network and they also have a large position in Sprint Nextel (S). Palm of course manufactures smartphones (primarily on Sprint's network) so there's a tie-in there. But you also have to consider that Falcone has a history of taking highly concentrated positions in companies and various M&A situations.

The initial reaction to this stake is that he could be gaming the possible takeover as maybe he sees more value in PALM than the $1-2 billion enterprise value that has been floated around by various analysts. Falcone's prior expertise is primarily in distressed companies and while Palm is not distressed (at least not yet), they certainly have struggled financially in the cut-throat smartphone arena. They still have $387 million in long-term debt as noted in their most recent 10-Q, but they also have $376 million in cash. So, it's hard to say exactly what Falcone's rationale is for taking this stake but clearly he sees an opportunity. We'll continue to monitor the developments.

In terms of other notable activity out of Harbinger, we posted that they had sold some shares of The New York Times (NYT). Philip Falcone's hedge fund was up 1.77% for the year at the end of March as noted in our first quarter hedge fund performance numbers post.

Taken from Google Finance, Palm is "a provider of mobile products for individual users and business customers worldwide. Palm’s products for consumers, mobile professionals and businesses include Palm Pre, Treo and Centro smartphones, as well as software, services and accessories."

You can view all of our previous coverage of hedge fund Harbinger Capital Partners here.

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