rumors hit the web back in
February, that PDA-pioneer Palm is in "takeover troubles" but now -
everything came different. As Palm, Inc., announced today, it's creating a
strategic relationship with the private-equity firm Elevation Partners
("Elevation") and a recapitalization plan that will position Palm to lead the
next phase of the smartphone and mobile-computing markets. Under the planned
recapitalization, shareholders will receive a US$ 9 per share cash distribution.
Elevation will invest US$ 325 million in Palm, and the company will utilize
these proceeds along with existing cash and US$ 400 million of new debt to
finance the cash distribution.
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 of the board.
Fred Anderson and Roger McNamee, managing directors and co-founders of
Elevation, will join Palm's board of directors upon closing of the transaction.
Rubinstein, Anderson, and McNamee will replace Eric Benhamou and D. Scott
Mercer, who will resign from Palm's board of directors at that time. The total
number of directors on the board will be increased from eight to nine in
connection with the transaction.
"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," said Ed Colligan,
Palm president and chief executive officer.
Colligan continued: "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 recapitalization provides an immediate return on their
investments and our shareholders will retain their ability to participate in
the company's success and future growth."
"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," said Roger McNamee. "We see Palm as uniquely positioned
to deliver the integrated software and hardware solutions that will drive
the next generation of mobile computing."
Jon Rubinstein added, "I have tremendous respect for Ed Colligan, Jeff
Hawkins and their team, and I am thrilled by the prospect of helping Palm
deliver innovative products capable of transforming the mobile-device
market. Approximately 1 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."
Under the terms of the recapitalization plan, Elevation will purchase US$ 325
million of a new series of convertible preferred stock. The conversion price
will be US$ 8.50 per share, which represents a premium of approximately 16
percent to the implied post-distribution price over the 10 trading days ended
June 1, 2007, excluding the US$ 9 per share cash distribution. Upon completion
of the transaction, Elevation will own approximately 25 percent of Palm's
outstanding common stock on an as-converted and diluted basis, based on the
number of shares of common stock outstanding as of March 30, 2007.
The company has secured commitments for US$ 400 million of new debt and a US$
40 million revolving credit facility which is not expected to be drawn at
closing. JPMorgan and Morgan Stanley will be joint bookrunners for these
Palm intends to use the proceeds from the sale of the preferred stock,
existing cash and the proceeds from the US$ 400 million of new debt to fund the
cash distribution. The amount of total proceeds to be distributed to
shareholders is estimated to be approximately US$ 940 million. The distribution
is expected to be treated as a return of capital for most shareholders.
Elevation will not be eligible to participate in the cash distribution.
The distribution represents more than one-half of Palm's current market
capitalization 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 US$ 300 million of cash on the balance sheet
after the distribution.
The recapitalization is expected to close in the third quarter of the
calendar year and is subject to shareholder approval, customary regulatory
approvals including clearance under the Hart-Scott-Rodino Antitrust Improvements
Act, and other customary closing conditions. A definitive purchase agreement has
been executed. The board of directors of Palm has unanimously approved the
Morgan Stanley is serving as financial advisor to Palm; Houlihan Lokey Howard
& Zukin Advisory Services, Inc. has provided a fairness opinion to Palm; and
JPMorgan is acting as financial advisor to Elevation. Wilson Sonsini Goodrich &
Rosati, Professional Corporation, is serving as outside counsel to Palm; and
Simpson Thacher & Bartlett LLP is acting as legal advisor to Elevation.
Cheers ~ Arne