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HP Saves Palm for $1.2B

Chalk up April 28, 2010, as the ending and beginning of Palm Inc. (PALM): The long-struggling smartphone maker has found a buyer. Thus, the bell tolls for the inventor of the personal device assistant; and yet, the deal resurrects the developer of the well-regarded WebOS platform.

The news comes after weeks of rumors that Palm would sell itself to a cell phone, computer or telecom equipment maker – HTC, Lenovo and Huawei were considered the top candidates. But on Wednesday, Palm surprised observers by handing itself over to computer-and-printer giant HP (HPQ), a name that had not come up in all the rampant speculation. And HP was the company to announce the transaction – Palm’s Web site made no mention of the sale.

HP will pay $1.2 billion, including the assumption of Palm’s debt. The per-share total comes to $5.70, or a 23 percent premium over the value of Palm’s stock at Wednesday’s close. Both companies’ boards of directors have approved the deal, even in light of Palm’s new guidance that fourth-fiscal-quarter revenue will fall short of predictions, coming in between $90 million and $100 million. Palm told the Securities and Exchange Commission that slow sales have “resulted in low-order volumes from carriers.” The merger should close by the end of HP’s fiscal third quarter, or by July 31.

The acquisition makes sense for HP. Analysts for months have said computer manufacturers need to have a mobility focus – and the closest HP’s gotten to mobility so far is through its line of netbooks. Now it will expand its mobility strategy “and create a unique HP experience spanning multiple mobile connected devices,” Todd Bradley, executive vice president of the personal systems group, said in a press release. In other words, HP plans to take advantage of the inherent strengths of WebOS – the system that powers the Pre and Pixi devices – such as multitasking and applications information-sharing.

HP also will own Palm’s “significant” IP assets, Bradley said, and keep Jon Rubinstein, Palm’s chairman and CEO, on board.

“Advances in mobility are offering significant opportunities, and HP intends to be a leader in this market,” Bradley said.

The acquisition also makes sense for Palm, which has watched sales plummet as consumers flock to the iPhone, Droid and other rival smartphones. A deal such as this had to materialize or Palm would have faded away. And to be sure, that’s still a possibility. HP seems to be buying Palm for WebOS and those vague IP assets only — Palm as a company stands to disappear because there’s little else that would serve as a boon to a new owner.

There was no word on the support that will be available for Palm smartphones once the merger closes. And HP surely is contemplating how to avoid another Compaq fiasco. The company suffered cultural clashes and management turmoil after the contentious 2001 merger, which co-founder Walter Hewlett opposed. HP, famously started in a California garage, then fell prey to the slash-and-burn style of CEO Carly Fiorina as she steered the corporation in new directions.

Shares of HP had slipped 1.11 percent in after-hours trading, reaching $52.69. Shares of Palm, meanwhile, were halted.


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