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Wednesday, January 14, 2009

Will Citigroup's Fallout Crush Bono's Pride in Palm Inc?


Palm Inc. (NASDAQ: PALM) realized that sometimes you can't make it on your own. That's why it signed U2 lead-singer Paul Hewson, AKA Bono as an investment partner.palm pre bono
 
According to the Daily Express, Bono, a rockstar known for his efforts to save the third world, invested 67.1 million pounds to rescue the smart telephone maker and he earned $56.4 million after the stock shot sky high last Friday.

Palm Inc. received another boost on Monday, when Citigroup upgraded its rating of Palm Inc. from sell, to hold, and Citigroup analyst Jim Suva said the new Palm Pre has the potential to be an iconic handset.

Less than 24 hours after Suva's assessment, Citigroup's clout is in question, as the company scrambles for solutions to its own fiscal problems.was in need of its own financial savior, and was labeled as an emblem of the economic drought by Bloomberg.

Considering Citigroup's collapse, investors may question the validity of Suva's assesment. Citigroup's reputation is sure to take a hit, so it will be interesting to see if Palm Inc. is indirectly impacted. Will Palm investors react by selling and/or trading?


For the record, Bono is part of an investment team known as Elevation Partners, which invested 339 million pounds in exchange for 39% stake in the company, so they have a significant amount of their own funds hinging on the Palm Pre's success. Elevation Partners includes several managing directors:
 

  • Fred Anderson, the former executive VP at Apple.
  • Bret Pearlman, a former senior managing director of the Blackstone Group.
  • Marc Bodnick, former director of crisis management at Kroll Associates.
  • Roger McNamee, the co-founder of Silver Lake Partners

During a video interview with Kara Swisher of All Things Digital, McNamee pitched the Palm Pre's best features, such as the 3 megapixel camera (with flash), the slide-out keyboard and webOS.
 

McNamee said:

The Palm OS is gone because it was 13 years old and ran out of gas. Well that's going to happen to the other guys and we're starting over again.
When we made the investment million in Palm, we had to believe it could be successfull without the failure of iPhone. Authoring really matters to people and it comes with a set of apps you can't get anywhere else. There are capabilities on this operating system that don't exist on the other ones, so you'll have more function.
 

 If the Palm Pre can emerge as a leading smartphone, it will require more than just a litle luck of the Irish.

By Matt O'Hern at 10:32 AM | Comments (7)

(7) Thoughts on Will Citigroup's Fallout Crush Bono's Pride in Palm Inc?

I submitted a reasonable comment questioning what the linkage between Citigroup and Palm was, beyond Citigroup's expressing an opinion. After being posted for a while, the comment was removed.

My comment was respectful and reasonable. Please explain why you do not allow comments requesting clarification of your blog postings.

Comments by Geoffrey Brooks : Thursday, January 15, 2009 at 12:52 AM

Mr. Brooks, thanks for your comment. Once I read your question, it prompted me to edit the section you mentioned. I figured you would notice the change, but in hindsight, I probably should have emailed you back.

If you return to the section, you'll notice where I elaborated on my point. Citigroup's own demise may influence the public's perception of Citgroup's ratings. As a result, Palm Inc's recent hot streak could end, and what appeared to be a great investment for Bono (and Elevation Partners), could prove to be a bad move.

Comments by matt : Thursday, January 15, 2009 at 10:01 AM

Thanks for the clarification.

As you know, there have been many reviews and assessments of the Pre over the past few days, and numerous opinions on PALM issued by analysts, one of which is that by an analyst with Citigroup. The Citigroup analyst's opinion is certainly not the best, and is in line with most of the others.

I see no connection at all between Citi's financial troubles and the validity of the opinions expressed by their analysts. And since their analyst's opinion is in line with most others, and was issued after the stock had jumped in response to the Pre intro at CES, how can you justify the headline of the article? It seems entirely baseless to me.

Comments by Geoffrey Brooks : Thursday, January 15, 2009 at 10:41 AM

I AGREE that Citigroup's analyst wasn't the only one praising the Palm Pre, but if you look at major media outlets, such as CNN, they credited Citgroup's rating as one of the key factors for the rise of the Palm Inc's shares.

CNNmoney.com's article stated:
"Shares of Palm Inc. rose Monday, gaining on a Citigroup upgrade to hold following the tech company's introduction of its new Pre smart phone and the potential it offers as a "game changer."

If Citigroup WAS perceived as a reliable gauge of the market,(as the CNN article indicates) yet they fail to manage their own money wisely, I personally start to question the validity of their ratings. Investors could begin to ask, "Well, who can I even trust anymore?"

Some will point to the credit crisis and bad market as in general, but others may reconsider the source they once trusted.

It's the same reason I wouldn't trust H&R block after it goofed on its OWN taxes. Do you follow me?

Comments by matt : Thursday, January 15, 2009 at 11:11 AM

No, not really. Would you be afraid to fly in a United plane because the company has financial problems? My point is that the stock analysts have absolutely nothing to do with the strategic management of Citigroup.

Given your approach, you should be writing articles questioning the viability of every company that Citi/Smith Barney has ventured an opinion on. You should be writing that every company that Merrill Lynch has issued a favorable opinion on, ought now to be considered suspect, since B of A is apparently not doing a good job of managing its own finances. Obviously, this makes no sense at all. But then, neither does your analysis of PALM.

Comments by Geoffrey Brooks : Thursday, January 15, 2009 at 06:26 PM

Following this thread, I too find the headline and disturbing and misleading, although I understand why it was written. Online Blogs need fresh material every day, and as such, must, at times, create news.

This is such a case. Of course the vagaries of one financial institution have absolutely nothing to do with Elevation Partners investing, and re-investing, in Palm. If that were so, imagine what the last few months would have done to all venture capitol?

However, a Blog must go on, so let's start a rumor and see where it goes. As I write this, Palm up .14 on the day!! Citigroup's troubles help Bono understand that he is right about Palm!

Comments by ernie stires : Friday, January 16, 2009 at 11:34 AM

The author clearly has no idea how research departments work...

Comments by Ryan : Friday, January 16, 2009 at 04:25 PM

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