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Apr. 28, 2010

After markets closed today, Hewlett-Packard has formally announced that it will acquire struggling smart phone maker Palm for about $1.2 billion in cash.

HP will acquire all of Palm's outstanding stock for $5.70 a share, a 23 percent premium over Palm's closing price of $4.64 today.

HP vice president Todd Bradley said in a statement "Palm's innovative operating system provides an ideal platform to expand HP's mobility strategy and create a unique experience spanning multiple mobile connected devices."

Bradley added that HP is looking to increase its market share in the rapidly growing smartphone market as well. He also noted that the company is interested in Palm's patents.

Palm was the subject of takeover rumors for many months, as the company has struggled to sell its Pre and Pixi smartphones.

Taiwan's HTC had been a rumored favorite to take over the company, because Palm's patents could possibly have aided HTC in its legal dispute with Apple. But HTC reportedly said last week it was not interested in buying the company.

Palm had been making handheld devices for the past 10 years before smartphones came to the market, and now wireless industry analysts say its patents could help a company that buys Palm to fight off any potential legal disputes with other smartphone makers.

Palm debuted its Pre smart phone in January of last year amid great expectations that it might pose the first real challenge to Apple's iPhone. But a bizarre marketing campaign, an exclusive contract with lower-profile wireless carrier Sprint, few apps, and the surprising success of Google's Android mobile platform overshadowed analysts' praise for the Pre's WebOS operating system.

Sales disappointed immensely, even after the Pre and its smaller sister, the Pixi, came to No. 1 mobile carrier Verizon Wireless.

In February, Palm Chief Executive Jon Rubinstein said that 2010 sales would be "well below" its forecasts, and investors responded by cutting the stock's value by half in less than a month.

"We look forward to working with HP to continue to deliver industry-leading mobile experiences to our customers and business partners," Rubinstein said Wednesday in a statement.

HP said it expects Rubinstein to remain with the company and for the deal to close by July.

Since most industry analysts think Palm's value is in its WebOS operating system, not in its physical smartphones, HP might choose to sell Palm-branded WebOS phones side-by-side with Windows 7 Phones.

Alternatively, HP could opt to license out WebOS to other handset makers if it wishes to do so.

For HP, acquiring Palm presents some interesting questions for the company's smartphone line. Most HP smartphones run Microsoft's Windows Mobile operating system, and HP has committed to launching phones in the fall with the soon-to-be-released and much-hyped Windows Phone 7 OS.

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Source: Hewlett-Packard.