Palm gets Elevation from Bono, iPod boss

Despite considerable scepticism about its new Foleo “smartphone companion”, on Monday, Palm got the kind of support that counts.

A private equity fund, Elevation Partners, gave the company 325 million reasons to believe in its new product. Under a recapitalisation plan that will involve the issue of new preferred stock, the fund will eventually own 25 per cent of Palm and name three members of the board.

Elevation brings with it Jon Rubinstein, better known as the manger of Apple’s hardware engineering and iPod division, who will become executive chairman of Palm.

The move will no doubt trigger a wave of speculation about new shiny gadgets, and Rubinstein did nothing to scotch the speculation. “I am thrilled by the prospect of helping Palm deliver innovative products capable of transforming the mobile-device market,” he said.

“Approximately 1 billion cell phones are sold each year, and mobile computing is a category with enormous potential. This is a company with an impressive history of introducing game changing products – it pioneered the smartphone – and I intend to help extend that legacy.”

And if winning the iPod boss didn’t give it enough kudos for cool, Bono, lead singer of U2, is a partner in Elevation – which is in fact named after the song of the same name. “The goal is elevation,” indeed.

But whether we are right in assuming that Rubinstein is coming to “pimp Palm’s phones,” is a better question than it sounds. Private equity investors are not always renowned for investing heavily in product development or research, even ones that count Bono among the board of directors. Quite often, their chief aim is to load up on debt and run the business for cash, with a view to leverage gains when they sell in a few years’ time.

Seeing as the deal includes a $400m syndicated loan as well as Elevation’s own money and the existing shareholders are being offered $940m in special dividends to be funded out of the total kitty, this might not come as a surprise. After all, the shareholders are getting this cash in exchange for their support in changing the board dramatically, appointing an outsider as chairman and CEO and borrowing a ton of money.