14 DAY TRIAL // You've probably all heard about the severe problems Palm has been having this year and countless articles have been written on the subject. This time though, the issue at hand sheds a bit of light for the smartphone manufacturer as its main investor will be annexing another $100 million to Palm's development plan.
Even though the news seems to be on a high note for Palm, if we look deeper into the insides of the deal, then it will be quite clear that Palm is actually taking a pretty big chance by accepting the $100 million and the responsibilities that go with it. As its quarterly and whole year earnings have displayed disastrous numbers this year, the company has been heading downhill fast for some time now. Its main investor is not at all pleased as there was word that Elevation Partner would be retiring from the partnership, but instead it has resorted to something much more clever and much more in the spirit of doing hard business.
By adding these extra $100 million to the investment sums, the company is somehow covering its back, for the amount in question is actually meant to buy the preferred Series C stocks. These stocks are convertible to normal Palm stocks at the price of $3,25/share, set up on December 19th, plus that it offers 0% dividend rate as well as the guarantee that Elevation Partners will be offered other 7 million shares at the same price at any given time.
Ed Colligan, president and chief executive officer of Palm, Inc declared, concerning the matter at hand, “The additional capital from Elevation Partners will enable us to put added momentum behind the new product introductions scheduled for 2009 and will provide us with enhanced stability in unsettled economic times[...]Elevation has been a great partner to Palm, and we appreciate their continued confidence and support.”
The main idea is that Palm is sacrificing both the Series C stocks and other common 7 million stocks hoping that, through this new investment and after the new releases set up for CES 2009, the company will really get back in business and “refresh” its stock prices as well as restore its former glory.
In any case, Elevation Partners cannot lose thanks to this recent deal. In case Palm falls even deeper in the “hole,” Elevation will buy those 7 million shares at the aforementioned low price and then, literally speaking, sell the part of the company it owns bit by bit, thus recovering most of its investment. On the other hand, should Palm do well next year, as most of us are probably hoping, again the company will buy those 7 million shares at said price, even though the actual price will be much higher due to the company's recovery.
Roger McNamee, co-founder of Elevation Partners, stated regarding the extra investment, “We believe that Palm is in a position to transform the cell phone industry, and we are pleased to have the opportunity to make this additional investment in the company. Palm has an industry-leading team and an exciting, differentiated product roadmap. We are proud to be associated with the company and look forward to great things from Palm in 2009 and beyond.”