Palm's Reorganization Faces The Music And Finances

Faced with powerful competitors targeting its smart phone market and an underwhelming reception last week to its highly touted Foleo smart phone accessory, Palm Inc. announced a financial and management reorganization Monday that has music written all over it.

The deal with private equity firm Elevation Partners brings Jon Rubenstein, former head of Apple Inc.'s iPod division, to Palm as executive chairman; Palm noted that Rubenstein "was instrumental in conceiving the iPod and became head of the business when it was spun off as a separate division in 2004." Rubenstein is expected to direct Palm's future product development.

Elevation Partners managing director and co-founder Roger McNamee has been a frustrated and talented amateur musician for most of his adult life, playing music at events around Silicon Valley and playing and advising for the Temptations, and the Grateful Dead. His biggest music coup came when he brought Bono, lead singer of U2, into Elevation as one of the firm's five partners.

In the reorganization, Rubenstein joins the Palm board as do McNamee and Fred Anderson, also a managing director and co-founder of Elevation. Anderson formerly was executive vice president and chief financial officer of Apple from 1996 to 2004.

Palm's president and chief executive officer Ed Colligan remains in his position. "As a result of this transaction, we will strengthen the Palm leadership team and create a more effective capital structure, which puts us in a great position to attract new talent, significantly strengthen our execution capabilities and deliver long-term shareholder value," Colligan said in a statement. The complicated finances of the reorganization will beef up Palm's balance sheet, giving the firm more resources for hiring and product development.

Palm pioneered much of the smart phone phenomenon with its Treo handheld devices, which remain popular even as bigger competitors like Motorola, Nokia and Research in Motion unveil compelling new smart handsets. And, looming later this month is the introduction of Apple's iPhone. Although consumers still haven't seen the iPhone " it's been hidden in a glass cage -- they are rushing almost hysterically to sign up for the device, which is also a music player.

At Palm, Rubenstein will return to an area where he scored a great triumph. "Approximately 1 billion cell phones are sold each year, and mobile computing is a category with enormous potential," he said in a statement Monday. "This is a company with an impressive history of introducing game-changing products -- it pioneered the smartphone -- and I intend to help extend that legacy."

According to media reports, Palm had been talking with investment houses and competitors about its future for months. Last week, Palm introduced its Foleo companion device for Treo users. The portable accessory was greeted with ho-hum reviews and reviewers noted that most Treo owners already have laptop computers that supply the same function as the Foleo.

Longtime Palm executive and product designer Jeff Hawkins will also remain associated with the firm. Rubenstein praised Hawkins, Colligan and their team. Leaving the Palm board are Eric Benhamou and D. Scott Mercer.