Private-equity firm buys into Palm

Palm is selling a 25 percent stake to private-equity firm Elevation Partners for $325 million and is bringing in Jon Rubinstein, who formerly ran the iPod division at Apple, as executive chairman of the board.

Palm said it would use the investment, along with existing cash, to pay out $9 per share to shareholders.

Fred Anderson and Roger McNamee, managing directors and co-founders of Elevation, will join Palm's board of directors, replacing Eric Benhamou and D. Scott Mercer, who will resign from the board. The changes bring the number of board members up from eight to nine.

Palm has struggled of late to stay competitive and rumors have swirled that the company was ripe for takeover, with several companies' names mentioned as possible suitors.

Palm's latest product, a 2.5-pound Linux-based laptop dubbed the Foleo, was announced to some confusion recently, and analysts have been wondering whether the company can stay relevant in a market where it must now compete with everyone from cell phone makers to Apple.

Rubinstein, who retired from Apple in 2005, pledged to bring Palm back to the forefront of mobile computing.

"Approximately 1 billion cell phones are sold each year, and mobile computing is a category with enormous potential," he said in a release. "This is a company with an impressive history of introducing game-changing products--it pioneered the smart phone--and I intend to help extend that legacy."

Palm also announced it has secured commitments for $400 million of new debt and a $40 million revolving credit facility, which is not expected to be drawn at closing.

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