Elevation Buys Into Palm

NEW YORK (AP) – Shares of Palm Inc. surged in premarket trading Monday after the “smartphone” maker said a private equity firm took a stake in the company to help revitalize an aging product line facing a barrage of competition.

The Sunnyvale, Calif.-based company said early Monday that a private equity firm called Elevation Partners bought a 25 percent stake in Palm for $325 million. Palm will use the proceeds from that sale plus $400 million in borrowed money to pay shareholders a $9 per share dividend. The dividend will total $940 million.

Elevation Partners is a $1.9 billion private equity partnership that invests in entertainment and media companies and tries to improve their content and marketing. The firm's five partners include former Apple Inc. Chief Financial Officer Fred Anderson, U2 lead singer Bono and private equity and venture capital investors.

Oppenheimer analyst Lawrence M. Harris said Palm brought Elevation Partners on board to help rejuvenate the company's line of smartphones, which are handheld, mobile computers allowing consumers to access e-mail and surf the Web.

Palm's key smartphone line, the Treo, is beginning to show its age, Harris said. Treo is suffering from competing with Research in Motion's BlackBerry, and later this month will begin competing with Apple's new iPhone smartphone.

“Palm is seeing increasingly vibrant competitors in the smartphone market,” Harris said. “That's a key concern among many investors at this point. They need to revitalize their product line.”

Shares of Palm spiked $1.78, or 10.7 percent, to $17.81 in premarket trading. The shares closed at $16.09 on Friday. Elevation's investment values the stock at $17.50, an 8.8 percent premium.