Palm CEO Tells CNBC: Sale of 25% Stake Has Long-Term Benefit

Palm Treo
Palm Treo

Palm CEO Ed Colligan told CNBC that the mobile computer maker agreed to sell a 25% stake to a private equity firm to "provide shareholders both with an immediate return and to benefit from what we consider a long-term upside."

In addition to selling the stake to Elevation Partners for $325 million, Palm said it will make a special payment of $9 a share to its shareholders.

“The Elevation (Partners) team is clearly in this for the long haul,” Colligan said in an exclusive interview. “They have a different investment horizon than most private equity firms. They want to invest in teams and transformational technology. That’s what they’re doing here. We believe with our $300 million in cash and consistent cash flow that we’ve been generating that we’ll have plenty of resources to invest where we need going forward.”

The sale of a stake in Palm comes after months of speculation that the company, which is best known for its Treo mobile phone, would be sold. Rumors had centered on a deal with rival phone makers Motorolaand Nokia.

Palm will use the new proceeds from the sale of the stake along with existing cash and $400 million of new debt to finance the cash payout.

Once the transaction is completed, Palm plans to increase the size of its board of directors to nine from eight, adding Jon Rubinstein, formerly head of the iPod division at Apple. He will serve as executive chairman of the board.

Two of Palm's board members, Eric Benhamou and D. Scott Mercer, will resign. They will be replaced by Elevation's Fred Anderson and Roger McNamee.

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.

Among Elevation's five partners is the rock star Bono, lead singer of U2.