Palm investment squashes acquisition rumours

• Ed Hardy, Editor in Chief, Brighthand.com
• Published: 05 Jun 2007 10:41

Earlier this year there were persistent rumours circulating that Palm was going to be bought by another company. It is clear now that this will not happen. Instead of full acquisition, the private equity firm Elevation Partners will be buying 25% of the company for $325 million.

As part of this deal, Jon Rubinstein, former head of the iPod division at Apple, will join Palm as executive chairman of the board. Rubinstein will lead the company's product-development efforts.

Fred Anderson and Roger McNamee, managing directors and co-founders of Elevation, will also join Palm's board of directors. Rubinstein, Anderson, and McNamee will replace Eric Benhamou (the current chairman of the board) and D. Scott Mercer.

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Payout for shareholders
In order to allow Elevation to buy a quarter of the company, Palm will need to issue a large number of additional shares. This will decrease the value of all the currently existing stock, so the company will be paying $9 to each current share holder.

Palm will use the $325 million it received from Elevation, along with existing cash and $400 million of new debt to pay for the cash distribution, which will total approximately $940 million. Still, the company will have more than $300 million of cash after the distribution.