Palm sells stake, adds former Apple execs to board
Smartphone maker Palm, Inc. said this week it plans to sell a 25 percent stake to private equity firm Elevation Partners for $325 million, a deal which will also bring former Apple executives to its Board of Directors.
The move follows months of speculation that handheld maker, best known for its Treo mobile phone, was considering a full-blown sale to potential buyers such as Motorola or Nokia.
As part of the deal announced Monday, the Sunnyvale-based company set forth a recapitalization plan where shareholders will receive a $9 per share cash distribution. Elevation will invest $325 million in Palm, and the handheld maker will utilize those proceeds along with existing cash and $400 million of new debt to finance the cash distribution.
Upon closing of the transaction, Plam said Jon Rubinstein, former senior vice president of hardware engineering and head of the iPod division at Apple, will join the company as executive chairman of the board.
Meanwhile, former Apple chief financial officer Fred Anderson and Roger McNamee, currently the managing directors and co-founders of Elevation, will also join the board. Rubinstein, Anderson, and McNamee will replace Eric Benhamou and D. Scott Mercer, who will resign their director positions 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 added: "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."
Under the terms of the recapitalization plan, Elevation will purchase $325 million of a new series of convertible preferred stock. The conversion price will be $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 $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 $400 million of new debt and a $40 million revolving credit facility which is not expected to be drawn at closing. JPMorgan and Morgan Stanley will be joint bookrunners for these facilities.
Palm intends to use the proceeds from the sale of the preferred stock, existing cash and the proceeds from the $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 $940 million.
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 $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 purchase agreement.
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.
The move follows months of speculation that handheld maker, best known for its Treo mobile phone, was considering a full-blown sale to potential buyers such as Motorola or Nokia.
As part of the deal announced Monday, the Sunnyvale-based company set forth a recapitalization plan where shareholders will receive a $9 per share cash distribution. Elevation will invest $325 million in Palm, and the handheld maker will utilize those proceeds along with existing cash and $400 million of new debt to finance the cash distribution.
Upon closing of the transaction, Plam said Jon Rubinstein, former senior vice president of hardware engineering and head of the iPod division at Apple, will join the company as executive chairman of the board.
Meanwhile, former Apple chief financial officer Fred Anderson and Roger McNamee, currently the managing directors and co-founders of Elevation, will also join the board. Rubinstein, Anderson, and McNamee will replace Eric Benhamou and D. Scott Mercer, who will resign their director positions 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 added: "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."
Under the terms of the recapitalization plan, Elevation will purchase $325 million of a new series of convertible preferred stock. The conversion price will be $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 $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 $400 million of new debt and a $40 million revolving credit facility which is not expected to be drawn at closing. JPMorgan and Morgan Stanley will be joint bookrunners for these facilities.
Palm intends to use the proceeds from the sale of the preferred stock, existing cash and the proceeds from the $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 $940 million.
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 $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 purchase agreement.
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.
Comments
Lets see 400 + 325 = 725 + 215 mil from cash = 940 mil to shareholders and that still leaves 300 mil in the bank and a credit line of 40 mil.
that means that they had 215 + 300 mil = 515 mil in the bank before starting this?
Does Elevation pay 325 mil and gets back $9.00 for every share they purchased?
Anyone knows the value of the stock as of Friday eve and the total number of outstanding shares? I am wondering what is the actual layout from Elevation, if enough shares were outstanding, PALM maybe paying Elevation.
I have no clue about this or any of the above, LOL, but it does not smell right somehow.
Lets see 400 + 325 = 725 + 215 mil from cash = 940 mil to shareholders and that still leaves 300 mil in the bank and a credit line of 40 mil.
that means that they had 215 + 300 mil = 515 mil in the bank before starting this?
Does Elevation pay 325 mil and gets back $9.00 for every share they purchased?
Anyone knows the value of the stock as of Friday eve and the total number of outstanding shares? I am wondering what is the actual layout from Elevation, if enough shares were outstanding, PALM maybe paying Elevation.
I have no clue about this or any of the above, LOL, but it does not smell right somehow.
Actually, you are right. Elevation does seem to be getting quite a good deal.
The transaction itself is straightforward. Palm borrows $440, and using the $500 million in cash they have, they will pay a special dividend to the existing shareholders of $940 million (= 104 million shares outstanding multiplied by $9 per share). Elevation does not get any of that.
Elevation is putting in an $325 million in cash, for which it will get "preferred dividends" over time, and a long-dated call option ("warrant") to convert to a certain number of Palm shares in the future. The exercise price of each warrant is $8.50 while the shares are currently trading for $17.50, implying that the warrants are worth about $9 per share already. If one does the math on the number of new shares that will be issued upon conversion, this works out to approx $295 million for Elevation, Rubinstein etc already for the $325 they are putting in. On top of this, they will get dividends on the shares (prior to conversion), and there is the option value associated with the fact that, at the time of exercise, the shares could be much more. Hence the good deal for them.
What is not clear is what Palm gets out of this. Also, loading up a tech company with so much debt may not be wise, but that is what private equity firms do. It seems to me like this is the sweetener they had to offer to get the ex-Apple folks in.
It does not seem like they are doing this from a position of strength. Perhaps they are running a bit scared.
I bet that's a huge hit for Steve in the stomach... if i remember correctly, Mr. Rubenstein was his right hand man... ? I might be wrong.
Hiring Rubenstein smells like an attempt to make Palm pretty enough for Apple (or a competitor) to acquire them...
If you can't beat 'em, poach 'em.
this is a cry for apple to buy them. Jobswon't want forner board members on the side of a sony or ms.
Palm is dead. Didn't ya see the Foleo? Ten times as big as the palm of old, ten times harder the fall. Rubinstein and Anderson will take their parachutes and jump soon.
Hawkins should think about getting into the leather wallet business instead... Foleo is jaw-droppingly dumb in this pre-iPhone environment.
Palm is dead. Didn't ya see the Foleo? Ten times as big as the palm of old, ten times harder the fall. Rubinstein and Anderson will take their parachutes and jump soon.
I have to agree that they are in their last leg, too many old bad decisions and now loading the company in debt, a bad quater or two and they run out of cash.
Elevation = Apple, Inc.
Well...we've had a 'U2' iPod...why not an 'Elevation' iPhone...
The exercise price of each warrant is $8.50 while the shares are currently trading for $17.50, implying that the warrants are worth about $9 per share already.
Nope, because once the $9 dividend is issued, the stock price will drop to $8.50.