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Palm adds partner to face competition

Elevation's $325m gets firm a 25% stake

SAN JOSE, Calif. -- Faced with mounting competition in the smart-phone market, Palm Inc. is selling a quarter of its company to a private equity firm to arm itself with new leadership, most notably the former technical guru behind the iPod.

The deal with Elevation Partners -- which agreed to invest $325 million for a 25 percent stake in Palm -- will bring new talent to the handheld computer pioneer as it battles stiffening competition that will only get tougher with Apple Inc.'s June 29 launch of the iPhone.

"This is great for Palm, and it was probably the right time to bring in a change in top leadership," said industry analyst Tim Bajarin, president of Creative Strategies, a consulting firm. "They needed a significant cash investment to take it to the next level and a partner who had the same vision."

As part of the deal, Palm will pay a special distribution of $9 per share, or about $940 million in cash, to shareholders.

Palm, best known for the Treo line of smart phones, said two board members -- former chief executive Eric Benhamou and D. Scott Mercer -- will resign. Elevation Partners' Fred Anderson and Roger McNamee will join Palm's board, and Apple Inc.'s former top hardware engineer, Jon Rubinstein will join the board as executive chairman.

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

Elevation's investment in Palm is the firm's largest ever.

"We don't think Palm is faltering or that there's anything wrong with the present," McNamee said . "We just think the future is incredibly bright."