Motorola Is Leading Contender to Buy Palm, Sources Tell CNBC

Cell-phone maker Motorola is considered the leading contender to buy Palm, the struggling hand-held device maker, sources close to the companies tell CNBC.

Motorola

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[MOT  Loading...      ()   ] is engaged in ongoing talks with Palm

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[PALM  Loading...      ()   ] about a possible buyout of the company.

Palm is reported to have hired Morgan Stanley in recent weeks to help it find a buyer. On Tuesday, Unstrung.com reported that Sweden's Nokia is the leading bidder for Palm, though Palm management favors a private equity buyer.

The sources tell CNBC, however, that while management does favor a private equity deal, a match with Motorola makes the most sense because there would be more synergy with the two companies' product lines.

Motorola, meanwhile, is subject to a wide range of speculation in the market after CEO Ed Zander backed out of next week's keynote address at CTIA, the wireless industry's leading conference. Research in Motion CEO Jim Balsillie will be his replacement. Motorola, under pressure for its poor earnings performance, is also being circled by activist investor Carl Icahn, who is seeking a seat on the Motorola board.

The speculation ranged from talk that Zander would be ousted to rumors that he would take drastic restructuring moves to retain his position at the company. Motorola refused to comment on the speculation but did confirm that Zander would not be speaking at next week's conference.

"Ed Zander has been under pressure because the RAZR has been the driving force at Motorola, and it's really been fading away and there's been no taker for the crown position in the Motorola handset business," said Pablo Perez-Fernandez at G Square Asset Management. "So I wouldn't be surprised if Ed is under tremendous pressure to either deliver or get out.

Business Wire file The Palm Treo 750.

"CTIA in particular is a big deal for Motorola," Perez-Fernandez added. "The fact that he's pulled out may be telling you something that something is up. He's under tremendous pressure and he may not be there much longer."

If Motorola were able to acquire Palm, it would add hand-held software and hardware to its own product offerings, boosting its next generation devices. Those devices would compete with the likes of Apple's iPhone and RIM's blackberry.

The dark horses in the wireless derby are Garmin, the handheld GPS device maker and Microsoft. Sources say that both these companies have been sniffing around for a possible deal of some kind. The sources also say in the private equity world, Texas Pacific and Silver Lake Partners are the most likely suitors.

Palm declined to comment.

"I think Motorola is the one that fits best, for the time being," said James Faucette, an analyst at Pacific Crest Securities. "Motorola has already acquired primary Palm partner Good Technology which makes a blackberry type solution. They've acquired Symbol, and adding Palm to that mix would definitely build out their capabilities in that area."