Shares of Palm Inc. surged Monday after the smart phone maker said it has raised another $100 million in funding from the venture capital firm Elevation Partners.

The stock rose 56 cents, or 22.5 percent, to close at $3.05. The Sunnyvale, Calif., company, which makes the Treo and Centro phones, said Elevation has agreed to buy preferred stock convertible into common shares at $3.25 each, a 31 percent premium over Friday's closing price of $2.49. Palm said the deal is expected to close by the end of January.
The announcement comes after Palm last week posted a growing loss for its fiscal second quarter, hit by a one-time tax charge and sinking revenue. The company has been struggling amid competition in the smart phone market from Research in Motion Ltd.'s BlackBerry and Apple Inc.'s iPhone.
Morgan Keegan & Co. analyst Tavis C. McCourt said in a note to investors that the new cash removes some uncertainty about the company's liquidity and signals confidence in Palm's viability from one of its biggest investors.
But he also pointed out that the investment will dilute the value of the stock for other shareholders. McCourt said he estimates that after a successful turnaround, common stockholders will own about 54 percent of the company, down from 66 percent.
Morgan Joseph & Co. analyst Ilya Grozovsky offered a similarly mixed reaction. The analyst said the $100 million is clearly a sign Elevation believes Palm's new phone and operating system set for release next year ""are compelling enough to warrant such a significant increase in an already large investment.""
But ultimately Palm's success will depend on how consumers feel about its new products, Grozovsky added.
(Source: BusinessWeek)