Elevation, the private equity firm in which U2 rock star Bono is a partner, has made its largest investment, paying $325m (€242bn) for a 25 per cent stake in Palm, the US-based maker of the Treo family of smartphones.
The investment, together with $400m in new debt, will be used by Palm to fund a $9-a-share cash distribution to existing shareholders while leaving Palm with the resources that Ed Colligan, chief executive, says it needs to develop new products.
Elevation will pay $8.50 a share for the stake, a 16 per cent premium to Palm’s share price over the 10 trading days up to last Friday.
Palm, which faces a declining market for its original personal digital assistants and growing competition in the fast-expanding smartphone market, has reshaped its board by appointing three Elevation representatives, two of whom are veterans of Apple.
Jon Rubinstein, former senior vice-president of hardware engineering at Apple and head of its iPod division, will join Palm as executive chairman.
Fred Anderson, former chief financial officer at Apple, who is a co-founder and managing director of Elevation, will join the board, as will Roger McNamee, a managing director at the firm.
“This is a huge announcement and a tremendous opportunity,” said Mr McNamee, a Silicon Valley venture capitalist and co-founder of Silver Lake Partners and Integral Capital. “I’m a kid in a candy store right now.”
Mr Rubinstein, Mr Anderson and Mr McNamee will replace Eric Benhamou and Scott Mercer, who will quit Palm’s board. The new structure will give Elevation – named after a U2 hit – three of the nine board positions.
Mr Rubinstein, who left Apple last year, helped develop the original iPod in 2001 and became head of the business when it was spun off as a separate division in 2004. He also led the team that built the iMac.
The strategic recapitalisation coupled with the appointments come at a crucial time for Palm and should end speculation about its immediate future including rumours this year that it might be up for sale. “This is by far the largest investment Elevation has ever made,” said Mr McNamee. “Mobile [computing] is a monster wave and Palm is at the centre of it,” he said. “The DNA of this company is all about breakthrough products.”