A year ago, Silicon Valley investor Roger McNamee was talking up the potential for Palm’s latest gadgets to put the iPhone in the shade – and getting into hot water with the SEC in the process (which led to this self-parodying video).
So Wednesday’s hurried sale of Palm to HP marks an ignominious retreat – even if Elevation Partners, McNamee’s buy-out firm, at least managed to protect its downside.
All-in, Elevation put $460m into Palm between 2007 and 2009 in what amounted to a big bet that it could corner a piece of the new smartphone market before slow-moving giants like Microsoft and Nokia (not to mention HP) finally got their act together.
But the pace of Palm’s financial deterioration revealed in an SEC filing today makes it clear how urgent it had become to find a suitor: at the cash burn expected this quarter the company would have run out of money before the end of the year.
Based on the sale price of $5.70 a share, Elevation looks like it will walk away with around $485m.
The first $325m of its investment was in convertible preference stock with a higher strike price, so it gets that money back. Its other investments in convertibles, warrants and ordinary stock leave it with some 26m Palm shares, worth around $148m.
Add in one or two other bits and pieces and it can at least point to a modest – very modest – return on its investment.
McNamee and crew, however, are not paid simply for not losing money. That is what banks are meant to be for. However you look at it, it’s a serious black eye for one of Silicon Valley’s most prominent investors.
