Palm Sells 25 Percent Stake

SUNNYVALE, Calif. – Smartphone maker Palm Inc. will sell a 25 percent stake to private equity firm Elevation Partners for $325 million, the company said Monday, and announced that the former technical guru behind the iPod will become chairman.

As part of the deal Palm will pay a special distribution of $9 per share to shareholders. It said the special distribution would be financed by the new investment, cash on hand and $400 million in new debt.

Palm, best known for the Treo line of phones, said two board members – former CEO Eric Benhamou and D. Scott Mercer – will resign. Elevation partners Fred Anderson and Roger McNamee will join Palm’s board, and former iPod guru Jon Rubenstein will join the board as executive chairman.

Rubenstein ran the iPod division at Apple from 2004 to 2006 and was key in the creation of Apple’s iMac computer before that.

Anderson, the former chief financial officer of Apple, recently agreed to settle Securities and Exchange Commission charges related to a stock options backdating probe at Apple. He also agreed to pay about $3.5 million in fines, without admitting wrongdoing. Anderson also serves as a director of eBay and Move Inc.

Among Elevation’s five partners, besides Anderson and McNamee, is the rock star Bono, lead singer of U2.

Palm has been the subject of extensive buyout speculation this year, with a range of firms from the worlds of telecommunications and private equity rumored as suitors.

Last week, the company introduced a new laptop-like device, the Foleo, designed to work with smartphones. However, it was roundly criticized by analysts and some in the technical press.