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 17,429.04 41.83 0.24%
Nasdaq 4,706.55 25.05 0.54%
S&P 500 2,031.24 1.69 0.08%
Treasuries 1.78 -0.04 -2.36%
Data as of 1:26pm ET
Company Price Change % Change
Apple Inc 117.36 8.22 7.53%
Yahoo! Inc 48.98 0.99 2.06%
Bank of America Corp... 15.39 -0.24 -1.54%
Microsoft Corp 42.32 -0.34 -0.80%
AT&T Inc 33.14 0.33 1.01%
Data as of 1:13pm ET


Shares of Chinese e-commerce giant Alibaba are falling on counterfeit goods concerns while Yahoo is up on spin-off plans. But Alibaba is expected to report huge increases in sales and profits. More

Estimates from experts vary between $500 million and $1 billion, but analyst Evan Gold echoed the sentiment of his peers: it "wasn't a big deal." More

Shares of Chinese e-commerce giant Alibaba are falling on counterfeit goods concerns while Yahoo is up on spin-off plans. But Alibaba is expected to report huge increases in sales and profits. More

On demand delivery startup WunWun is expecting its order volume to double by the time they close up shop on Monday. All thanks to a blizzard. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2015 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2015. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2015 and/or its affiliates.