Hewlett-Packard to buy Palm in $1.2 billion deal

SAN FRANCISCO — Hewlett-Packard said Wednesday that it will acquire Palm in a deal worth $1.2 billion — ending months of speculation about the fate of the troubled wireless handset maker.

In a statement, Hewlett-Packard said it will pay $5.70 a share in cash for Palm, representing a premium of 23 percent over the closing price of Palm's shares on Wednesday. The transaction has been approved by the boards of directors of both companies.

Palm has been the subject of takeover rumors for weeks, as slow sales of the company's latest smart phones have depressed the stock's value and made analysts question the company's future. Palm developed its own mobile operating system called webOS and has launched two handsets — the Pre and the Pixi — on the new platform.

Hewlett-Packard was one of several companies rumored to have an interest, as PC makers see growth in the mobile device market outpace that of traditional computers.

"Palm's innovative operating system provides an ideal platform to expand H-P's mobility strategy and create a unique H-P experience spanning multiple mobile connected devices," Todd Bradley, executive vice president for Hewlett-Packard's personal systems group, said in the statement.

Palm chairman and CEO Jon Rubinstein is expected to remain with the company. The transaction is expected to close during Hewlett-Packard's third fiscal quarter, ending July 31.

"It's a bold move — it's a seriously bold move," analyst Crawford Del Prete of IDC said.

Del Prete said of Palm, "Clearly the company has got issues, but they have a following. And that opportunity is highly valued."

JMP Securities analyst Douglas Ireland echoed this view, saying Palm clearly fits Hewlett-Packard's portfolio and strategy.

"I think they got a very interesting asset," he said. "Palm Treo was probably the closest competitor to Research In Motion in the market and had the best chance of winning over business users."

On the other hand, Ireland said, Hewlett-Packard does not have an impressive track record when it comes to the smart-phone market, "although they certainly breathed life into Palm as a competitive threat."

Still, Ireland said, Hewlett-Packard will "have to learn a new business."

Avi Cohen of Avian Securities said the deal could be bad news for other smart-phone companies, including Apple, RIM, Nokia Corp. and Motorola.

"H-P has very deep pockets, so they can push lots of money at being competitive," Cohen said. "This will assure carrier partners that the Palm brand is not going away so they can invest in it; it will assure application developers that the platform is not going away so they can invest in it."