HP to buy Palm for $1.2 billion

By David Goldman, staff writer


NEW YORK (CNNMoney.com) -- Hewlett-Packard announced Wednesday that it would buy struggling smart phone maker Palm for $1.2 billion.

HP (HPQ, Fortune 500) -- which is known more for its computers, notebooks and printers than its smart phones -- will buy Palm (PALM) for $5.70 a share in cash, a 23% premium over Palm's closing price of $4.64 on Wednesday. After hours, shares of Palm soared 28%, while shares of HP fell less than 1%.

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

On a conference call with analysts, Bradley said HP is looking to increase its market share in the rapidly growing smart phone market. He said the deal represents a "significant opportunity for profitable growth."

"HP and Palm will make a powerful combination," said Bradley. "Palm has a deep bench of engineering talent ... but Palm is operating [at a] loss right now, so we have some work to do."

Palm was the subject of takeover rumors for months, as the company has struggled to sell its Pre and Pixi smart phones. 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 (AAPL, Fortune 500). But HTC reportedly said last week it was not interested in buying the company.

Palm debuted its Pre smart phone in January 2009 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 (GOOG, Fortune 500) Android mobile platform overshadowed analysts' praise for the Pre's WebOS operating system.

Sales disappointed, even after the Pre and its smaller sister, the Pixi, came to No. 1 mobile carrier Verizon (VZ, Fortune 500) 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.

Intriguing combination

Buying Palm presents some interesting questions for HP's smart phone line. Most HP smart phones run Microsoft's (MSFT, Fortune 500) Windows Mobile operating system, and the company has committed to launching phones in the fall with the soon-to-be-released and much-hyped Windows Phone 7 OS.

Though the company wouldn't say what its specific plans were in the smart phone market, Bradley said Palm will be a "business unit" of HP, and noted that "Microsoft is a very important partner and will continue to be so."

In addition to smart phones, HP said it plans to "aggressively create a new platform" for Palm's WebOS operating system. HP said it plans to use the operating system in non-smart phone devices, like tablets and perhaps television sets.

"This acquisition combines HP's financial and global strength with Palm's innovative OS and appears to be a winning combination," said James Brehm, analyst with Frost & Sullivan.

Brehm, like most analysts, said he thinks Palm's value is in its WebOS operating system, not in its physical smart phones. Though it's unclear whether HP will choose to license out WebOS to other handset makers, HP will likely opt to sell Palm-branded WebOS phones side-by-side with Windows Phone 7 phones.

HP also noted that the company is interested in Palm's patents. Palm had been making handheld devices for a decade before smart phones came to the market, and analysts say its patents could help a company that buys Palm to fight off any potential legal disputes with other smart phone makers.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,408.54 -16.31 -0.10%
Nasdaq 4,095.52 9.29 0.23%
S&P 500 1,864.85 2.54 0.14%
Treasuries 2.72 0.08 3.19%
Data as of 1:19am ET
Company Price Change % Change
Bank of America Corp... 16.15 0.02 0.12%
Facebook Inc 58.94 -0.78 -1.31%
General Electric Co 26.56 0.44 1.68%
Cisco Systems Inc 23.19 0.16 0.69%
Micron Technology In... 23.91 1.43 6.36%
Data as of Apr 17
Sponsors

Sections

General Mills has scrapped a controversial change to its fine print that some read as eliminating customers' right to sue the company. More

Obamacare sign ups hit 8 million, though final enrollment remains to be seen. More

Office for iPad move is a symbolic victory for Nadella's Microsoft, but the company is still weighed down by many of the same old issues. More

Schwinn, Trek and Cannondale are all iconic American bicycle brands. But none of them are made in the United States. More

Getting people to donate money is a big business, and some universities, hospitals and other nonprofits are rewarding their top fundraisers with as much as $1 million to bring in the big bucks. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.