Palm (PALM) Gets A Face-lift

June 4, 2007 by Douglas A. McIntyre

Palm (PALM), the smart phone company which has been the subject of endless takeover rumors, solld 25% of itself to Elevation Parners for $325 million

According to The Wall Street Journal: "Palm will pay $940 million in cash, or about $9 a share, to existing shareholders whose ownership of the company will drop to 75% under the deal’s terms." The company will take on $400 million in debt to help cover the payout.

Elevation will bring in several executives including Apple’s (AAPL) former CFO and head of hardware development.

The deal looks like a loser. Palm gets to add $400 million in debt, gets no new strategic partner, and adds a few people who have as their claim to fame being fomer managers at Apple.

What Palm needs is a much larger strategic partner who can give the company a broad distribution and product development platform. Instead, investors get a company which may be too small to compete in the smartphone busines and a great deal of debt.

Rumors of a buy-out from a larger company had lifted the stock recently. Sprint (S), Motorola (MOT) and Nokia (NOK) have been mentioned.

Palm’s revenue per quarter runs about $400 million. With the iPhone coming to market, it needs a big brother. It hardly got that with the Elevation deal.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.