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Palm Defends Its Deal

Palm (PALM) may have just bought its freedom.

The smartphone company, in selling a 25% stake to private-equity firm Elevation Partners on Monday, got the one thing that its core management has fought hard for over the years: the ability to be an independent player and control its destiny.

The $325 million deal will also buy Palm the two executives it hopes can help revitalize its business -- Jon Rubinstein, former senior VP of hardware engineering and head of the iPod division at Apple (AAPL), and Fred Anderson, Apple's former CFO.

Anderson recently agreed to pay back more than $3 million and to submit to a $150,000 civil penalty to settle a stock options backdating case at Apple, while not admitting any wrongdoing.

Now, with happy shareholders, potential predatory moves thwarted and some of the sharpest minds in Silicon Valley on board, Palm believes things can only get better.

"The key reason we did this is because we believe in the future of this company," says Ed Colligan, CEO of Palm. "It is a high-risk-high-reward deal, but we felt we had the resources to make it happen."

But what Palm hasn't made clear, yet, is how the transaction will help the company hold its own in an increasingly competitive market, or create the kind of breakthrough products, such as the BlackBerry Pearl, that have put rival Research In Motion (RIMM) on top.

Palm's gambit, for now, has seemingly melted shareholders' hearts. Palm's stock soared 9.2% and closed up $1.48 to $17.57.

Under the planned recapitalization, Elevation Partners will invest $325 million in Palm, and the company's shareholders will receive $8.50 a share. Palm plans to take the new investment, existing cash and $400 million of new debt to finance the $940 million cash payout to shareholders.

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