Palm Raises Public Offering

Palm Inc. (PALM) today raised its secondary offering of approximately 16 million shares of common stock (as announced on September 17) to 20 million shares. The company priced the offering at $16.25 per share.

Upon the closing of the offering, Palm expects to receive net proceeds of approximately $313.1 million, which will be used for working capital and general corporate purposes. The company may receive $359.9 million in case the over-allotment option is exercised in full. The company also said that the underwriters have an option to purchase up to 3 million additional shares to cover over-allotments.

Venture capital firm Elevation Partners, which owns a stake in Palm, plans to buy $35 million of shares in the sale. Goldman Sachs (GS - Analyst Report) and J.P. Morgan (JPM - Analyst Report) are serving as the joint book runners in the offering, and RBC Capital Markets is serving as co-manager.

In order to boost its earnings and curb cash burn, the company has come out with the offering. PALM had a negative working capital (current assets minus current liabilities) of $269.5 million at the end of the last quarter ended August 2009.

Palm exited the most recent quarter (first quarter of fiscal 2010) with $221.2 million in cash, investments (including short-term and restricted portion) and non-current auction rate securities versus $264.6 million in the previous quarter. The company used $45.1 million cash from operations. Palm expects to use cash in the first half of fiscal year 2010.

The company posted a loss (for the eighth consecutive quarter) of 10 cents per share excluding one-time items. Palm’s business had been struggling amid competition from Research in Motion’s (RIMM - Analyst Report) BlackBerry and Apple’s (AAPL - Analyst Report) iPhone. We do not expect any improvement in Palm’s business and maintain our Underperform rating on the stock.

Shares of Palm have been soaring in anticipation of the forthcoming secondary offering, which was at a 5.0% discount to the closing price of $17.07 yesterday. Shares of Palm have been hovering around the $17 mark since mid-morning, down a quarter of a percent.

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