Palm shares rise 22% on investment accord
Shares of Palm Inc., the money-losing maker of the Treo and Centro mobile phones, rose 22% on Monday after investor Elevation Partners agreed to pay $100 million to increase its stake.
Elevation will get preferred stock that’s convertible into common shares at $3.25 each, Palm said. The offer is 31% more than Palm’s closing price Dec. 19. Elevation, whose managing directors include U2 singer Bono and private-equity investor Roger McNamee, bought a 25% stake in Palm last year.
The cash will help fund new products and cushion the Sunnyvale, Calif., company from the economic slump, Chief Executive Ed Colligan said in a statement.
The phone maker, which posted its sixth straight loss last week, is working on new operating software to compete with Research In Motion Ltd.’s BlackBerry and Apple Inc.’s iPhone, which have wrested away customers for Web-surfing phones.
“If they put this additional money in, it improves their viability and a chance to get a return on the entire investment,” said James Faucette, an analyst at Pacific Crest Securities Inc. He expects the shares to outperform the broader market.
Palm shares gained 56 cents to $3.05. The stock has dropped 52% this year.
The investment will give Elevation a 39% stake in the company, Palm spokeswoman Lynn Fox said. Elevation also has warrants to buy 7 million shares at the same price, which would boost its ownership to 41%. Palm can make Elevation sell up to $49 million of the new investment at the same or better terms by March 31, according to the statement.
Palm may introduce its new Nova software at the Consumer Electronics Show next month in Las Vegas, said Faucette, who works out of Portland, Ore.
Colligan said last week that handsets with the new software would be available in the first half of 2009. Palm ranks outside of the top five makers of smart phones, a category dominated by Nokia and Apple.
Palm Chairman Jonathan Rubinstein, who joined last year as part of the initial investment by Elevation, helped design Apple’s iPod music player. Apple’s iPhone became the most popular mobile phone among U.S. consumers last quarter, according to research firm NPD Group Inc., which is based in Port Washington, N.Y.
