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Elevation takes stake in PDA firm Palm

Palm, the manufacturer of personal digital assistants and Treo smartphones, has announced that private equity firm Elevation Partners will take a 25 per cent stake as part of a financial a

Palm, the manufacturer of personal digital assistants and Treo smartphones, has announced that private equity firm Elevation Partners will take a 25 per cent stake as part of a financial and executive restructuring that will also see the return of almost USD1bn to shareholders.

Palm, based in Sunnyvale, California, offers products for consumers, mobile professionals and businesses including Treo smartphones, the just-launched Foleo mini-laptops companions and Palm handheld personal digital assistants, as well as software, services and accessories.

Under the planned recapitalisation, shareholders will receive a USD9 per share cash distribution, financed by Elevation’s USD325m investment in Palm, existing cash and USD400m of new debt. Upon closing of the transaction, Jon Rubinstein, former senior vice president of hardware engineering and head of the iPod division at Apple, will join Palm as executive chairman, and Fred Anderson and Roger McNamee, managing directors and co-founders of Elevation, will also join Palm’s board, replacing Eric Benhamou and D. Scott Mercer.

‘As a result of this transaction, we will strengthen the Palm leadership team and create a more effective capital structure, which puts us in a great position to attract new talent, significantly strengthen our execution capabilities, and deliver long-term shareholder value,’ says Palm president and chief executive Ed Colligan.

‘Jon Rubinstein is one of the top engineering executives in Silicon Valley, and he will lead our product-development efforts. As a significant new investor, Elevation brings onboard unique partners and relationships, plus a long investment horizon. For shareholders, the recapitalisation provides an immediate return on their investments and our shareholders will retain their ability to participate in the company’s success and future growth.’

Says McNamee: ‘This is by far the largest investment that Elevation has ever made, which reflects our enthusiasm for Palm and its opportunity. This investment fits perfectly with Elevation’s investment strategy of partnering with great management teams to transform businesses in industries with dynamic technology change. We see Palm as uniquely positioned to deliver the integrated software and hardware solutions that will drive the next generation of mobile computing.’

Rubinstein says: ‘I am thrilled by the prospect of helping Palm deliver innovative products capable of transforming the mobile-device market. Approximately one billion cell phones are sold each year, and mobile computing is a category with enormous potential. This is a company with an impressive history of introducing game-changing products – it pioneered the smartphone – and I intend to help extend that legacy.’

Elevation will purchase USD325m of a new series of convertible preferred stock at a conversion of USD8.50 per share, a premium of about 16 percent to the implied post-distribution price over the 10 trading days to June 1, excluding the cash distribution. Upon completion of the transaction, Elevation will own some 25 percent of Palm’s outstanding common stock.

The company has secured commitments for USD400m of new debt and a USD40m revolving credit facility which is not expected to be drawn at closing. JPMorgan and Morgan Stanley will be joint bookrunners for these facilities. The recapitalisation is expected to close in the third quarter.

Palm intends to use the proceeds from the sale of the preferred stock, existing cash and the proceeds from the USD400m of new debt to fund the cash distribution to shareholders, a total of about USD940m. The distribution represents more than half of Palm’s current market capitalisation and enables existing equity holders to retain nearly three-quarters of the post-transaction equity on a fully diluted basis. The company expects to have more than USD300m of cash on the balance sheet after the distribution.

Morgan Stanley is serving as financial advisor to Palm; Houlihan Lokey Howard & Zukin Advisory Services has provided a fairness opinion to Palm; and JPMorgan is acting as financial advisor to Elevation. Wilson Sonsini Goodrich & Rosati is serving as outside legal counsel to Palm, while Simpson Thacher & Bartlett is acting as legal advisor to Elevation.

Elevation Partners is a USD1.9bn private equity firm that makes large-scale investments in market-leading media, entertainment, and consumer-related businesses. Its five partners are Anderson, former executive vice-president and chief financial officer of Apple; Bret Pearlman, former senior managing director of the Blackstone Group; Marc Bodnick, a founding principal of Silver Lake Partners; McNamee, co-founder of Silver Lake Partners and Integral Capital Partners; and Bono, lead singer and co-founder of the rock band U2.

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