The future of Palm (PALM) looks bleak and U2 lead singer Bono investor in Elevation Partners may lose $460 million (â‚¬340m) on deal.
NEW YORK (Laureate BVI) -- Elevation, a private equity firm that includes U2 lead singer Bono among its partners, has made three more investments in Palm since its initial deal, buying common stock, convertible preferred shares and warrants worth about $460 million (â‚¬340m).
Elevation, which now controls roughly 30 percent of Palm, has stood by the smartphone maker, even as other shareholders bailed and analysts warned its days as an independent company may be numbered.
Palm's future has not looked good since the launch of the iPhone. But after reporting worse than expected results for the third quarter last week Thursday, some analysts think the company's stock is now essentially worthless. Three analysts even lowered their price targets to $0.
Shares of Palm (PALM) plunged 19% to $4.59 a share early last week, a new 52-week low. Investors are becoming increasingly pessimistic about the company's future and several analysts downgraded their positions on the stock to "sell." Palm has struggled to make a dent in the smartphone market. Apple's (AAPL) iPhone and Research in Motion's (RIMM) BlackBerry are far more popular. Competitors Nokia (NOK) and Motorola (MOT) have also had more success in the market.
Peter Tasca, CEO of Laureate BVI fund says, "What I find most troubling about the future of Palm is the departure of Michael Abbott, the Senior Vice President who was responsible for their WebOs operating system. Mr. Abbott was granted 400,000 options on Palm stock two years ago with a strike price of $5.75. When one of your top executives potentially leaves money on the table, that is not a good sign."
In an attempt to reassure investors worried about the company's financial situation, Palm announced in February that it had $500 million in cash on hand. But analysts expect this buffer to soon be lost given the pace at which the company is burning its money in its attempts to pick up flagging sales.
Canaccord Adams analyst Peter Misek who also lowered Palm's price target to $0 Friday, wrote in a report that "Palm's troubles will only accelerate as carriers and suppliers increasingly question the company's solvency and withdraw their support."
Tasca added that he thinks Palm's current cash level can only keep the company afloat for about another 12 months.
Palm was not immediately available for comment about the analysts' downgrades and questions about its cash position.
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