Palm Sells 25% Stake

After months of fevered speculation about a merger, sell-off, or management buyout, PDA pioneer Palm Inc. has finally sold a 25 percent stake in the company to Elevation Partners -- a private equity firm part-owned by U2 frontman Bono -- for $325 million.

Under the terms of the deal, Elevation will purchase $325 million worth of a new series of convertible preferred stock at $8.50 per share. Palm also plans to pay $9 per share in cash to stockholders and use the new proceeds along with existing cash and $400 million in new debt to finance the cash payout.

Unstrung first reported that Palm was considering private equity investors among its strategic options in February this year. Motorola Inc. (NYSE: MOT) and Nokia Corp. (NYSE: NOK) have also been linked with the handheld and smartphone maker in the past few months. (See Palm's in Play , Palm Action Heats Up and Palm Deal in the Final Stretch.)

The Elevation deal will lead to some reorganization at the top for Palm. As part of the partial sale, former Apple Inc. (Nasdaq: AAPL) executive Jon Rubinstein will take on the executive chairman role to help manage the company. With the Apple iPhone launch due at the end of this month, Palm is keen to stress that Rubinstein led Apple's iPod division during his time at the company.

Elevation will put two of its own on the board if the deal is approved by Palm's shareholders. They are Roger McNamee, a co-founder of Silver Lake Partners , which was initially one of the firms rumored to be interested in buying Palm earlier this year. Former Apple CFO Fred Anderson would also get a seat. Two current board members -- Eric Benhamou and D. Scott Mercer -- would leave the board to make way for the new blood.

Palm's shares rose 6.65 percent, or $1.07 a share, to $17.16 this morning on news of the deal.

— Dan Jones, Site Editor, Unstrung

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