OK Magazine this morning reports that U2 front man Bono may have lost millions through his investment in Palm via Elevation Partners, but OK Magazine seems to have got it wrong – this picture’s gloomy, but not quite so black, or so it appears.
One thing’s for sure, however – similar levels of investment in former U2 buddy, Apple, would have been a far shrewder move for the Irish singer, generating in excess of one hundred million dollars in the same period.
Here’s the facts about Elevation Partner’s Palm investments, necessarily a layman’s approximation of the same.
Elevation Partners has made two widely-known major investments in Palm.
The first was revealed on October 24, 2007. At that time the investment group pumped $325 million into Palm, at a value of $8.50 per share, so around 38,235,294 shares.
The second was revealed on December 22, 2008. At that time the investment group pumped $100 million into Palm, at a value of $3.25 per share, approximately 30,769,230 shares.
Elevation Partners seems likely to have lost out on the initial investment.
We reached for a pen and scrap paper and work out that the $325 million would now be worth around c.$232,852,941, based on Palm’s $6.09 closing price on Friday’s trading. The value of that initial investment may have fallen by around $93 million.
The second $100 million investment did much better.
Reaching once again for our financial ignorance and estimation machine (calculator), we assess those c.30,769,230 shares could be worth in the region of $187,384,610. So Bono’s band of brothers managed to regain c.$87 million in value to make up that previous $93 shortfall. (Again based on Palm’s $6.09 price).
However, OK Magazine has missed another detail. The second investment also gave Elevation Partners warrants to acquire 7 million shares of Palm common stock at the same $3.25 per share price.
If the company hasn’t already exercised those warrants, then an investment in 7 million shares today would cost Elevation Partners $22,750,000. Instant disposal of these would (apart from causing an even bigger run on Palm stock) generate Bono’s investment arm an immediate $42,630,000, for a total profit on the deal of $19,880,000.
Summing up: Elevations two previous investments have cost the company $425 million for assets now worth in the region of $420 milllion. An additional short-term investment of $22,750,000 would yield around $19,880,000, meaning the investment group could still squeeze some juice out of its Palm.
In essence, this means Bono hasn’t lost too much money, at least, not yet – indeed, right now Elevation could make a few million on the deal, all being well (and assuming Palm stock finds a support level soon).
This isn’t exactly a get rich quick scheme. so let’s take a look at equal cash investments in another company, let choose another firm that’s popular in the mobile space, let’s choose Apple.
A $325 million investment in Apple on October 24 2007 would equate to around 1,749,099 shares at $185.81 per share (Appe’s stock value on that day in 2007). Those shares would now be worth $353,982,655.62 – a pleasing and moderatly low hassle $28.9 million profit maker.
The second more recent investment of $100 million would have generated a giant slice of profit. Apple’s share price at that time had slumped to $90.02 per share, so $100 million would have given Bono’s boys around 1,110,864 shares.
These would now be worth $224,816,656 – a nice $124,816,656 million profit.
That Bono backed the wrong horse with Palm is open to question, it seems likely Elevation Partners will make a few million on the deal, particularly if the company is sold to a third party. That’s nice.
Nice enought? Maybe, but consider, similar ($425 million) investments in Apple in the same period would have generated in the region of $153,716,656. in profit.
NB: Please be warned these figures could be inaccurate. They’re based entirely on our limited understanding, and we’d welcome clarification.
For example, these estimates don’t take into account any trading or legal fees, any legal limitations on such trades, any information (whether in the public eye or not) which may positively or negatively impact on either investment.
All sums were figured out on the back of an envelope, and any errors that may be factored into these sums were based on the author’s ignorance.
The value of any investment can go down, as well as up, but these figures do we think provide some relative illustration – but we wouldn’t suggest anyone use this report for investment advice. (Not that we think there’s anything too inaccurate here, but we aren’t stock market experts).