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Palm Investors Brace for Takeunder

With Palm phones now selling at rock-bottom prices, the company may have trouble fetching anything not similarly discounted.

NEW YORK (TheStreet) -- As Palm (PALM) pretties up for potential buyers, investors may want to brace for an ugly takeout price.

Palm has hired bankers Goldman Sachs and Frank Quatrone's Qatalyst Partners to shop around for a buyer for the slipping smartphone outfit, according to

Bloomberg

.

Palm Pre

The move comes less than four weeks after Palm cut its sales target in half, which immediately raised concerns of

survivability for Palm,

which may not have enough cash to get through the year. No shock then that the company may be exploring its options.

The problem for Palm investors is that the prospects of a big rich buyout may have passed by months ago.

Last year, when Palm was a revived upstart with a solid design in a hot smartphone market, top tier manufacturers like

Hewlett-Packard

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,

Dell

(DELL) - Get Dell Technologies Inc Class C Report

and

Nokia

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seemed like the natural next step to a big-league success. But nothing materialized and each potential partner passed on Palm.

Now, after another dismal three months of disappointing sales, the second tier of manufacturers like

HTC

and

Lenovo

have decided to steer clear of Palm. So Palm has hired a top notch sales team to try and drum up some interest.

At this point, Palm doesn't necessarily represent a big return on investment. Conventional thinking would suggest that it will take close to $1 billion just to buy Palm -- which is trading at $5.85 and currently valued at $987 million. But it will also take another $1 billion to rebuild Palm marketing and new product development to get the company back in the game.

Regrets: Palm's had a few.

Palm's road to an improbable comeback was hexed from the from the moment it took a wrong turn last spring when it formed an exclusive sales agreement with weak No. 3 telco

Sprint

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. Not only was the partnership problematic,

the timing was atrocious

. Sprint launched the Palm Pre just hours before

Apple

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started selling its most popular version of the iPhone.

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Compounding the troubles, the Palm Pre hit the market with defects.

"When we came out of the chute with Sprint, there were a variety of hardware issues," CEO Jon Rubenstein told

Fortune

in a

recent recap

of how the company went so quickly from phoenix to toast.

Palm Pre sales were tepid and by September,

Sprint cut the price in half to $99

, not a good sign.

All hope wasn't lost though. Palm was due to arrive at No. 1 telco

Verizon

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at the beginning of the year.

But true to the hex,

Motorola

(MOT)

,

Google

(GOOG) - Get Alphabet Inc. Class C Report

and Verizon were busy putting the final touches on the debut of an Android-powered touchscreen

Droid

phone. This was

Motorola's guts-and-glory gamble

on Google, and potentially one of the best answers for Verizon to the iPhone at

AT&T

(T) - Get AT&T Inc. Report

.

With so much excitement building for the Droid,

Verizon had almost no interest in the slow-selling Palm

phones that had languished at Sprint. Verizon did comply with its agreement to carry the Palm phones, but last month Palm reported a mountain of Verizon phone inventory that would wipe out the sales targets.

To a potential buyer, this merely makes Palm a cheaper acquisition, but how cheap?

"Every day they wait, they are worth less," said one industry analyst referring to Palm's hoped for buyout.

For a clue where Palm pricing is headed, look no further than Verizon's new discount on the Palm phones. Verizon is now selling Palm Pre Plus for $50, which is 75% below the original price Palm had on the Pre phones.

Palm phones are in the clearance bin at Verizon. And there's a big chance that Palm, the company, is headed for an unappealing bin of its own.

-- Written by Scott Moritz in New York.