Wednesday, April 28, 2010

HP Will Acquire Palm for $1.2 Billion

Business Week

Hewlett-Packard Co., the world’s biggest personal-computer maker, agreed to acquire Palm Inc. in a deal that values the company at about $1.2 billion, stepping up efforts to compete in the smartphone market.

The price of $5.70 a share represents a 23 percent premium over Palm’s closing price today. The transaction should be completed by the end of July, Palo Alto, California-based Hewlett-Packard said in a statement.

The Palm deal vaults Hewlett-Packard back into contention with the world’s biggest smartphone makers, including Apple Inc. and Research In Motion Ltd. Sales of Hewlett-Packard’s current smartphone, called iPaq, haven’t kept up with competitors. The company also gets a Palm patent lineup that spans mobile hardware, software and power-saving technologies.

“This solidifies the portfolio of products they can offer an enterprise,” said Bill Kreher, an analyst at Edward Jones & Co. in St. Louis. He recommends buying Hewlett-Packard’s shares, which he doesn’t own. “You are combining the exciting technology from Palm and the scale and distribution capabilities of H-P.”

While Palm has a bigger presence in the phone market than Hewlett-Packard, it too has struggled to match the appeal of Apple’s iPhone, RIM’s BlackBerry and phones using Google Inc.’s Android software. The company’s Pre and Pixi phones, released last year in a comeback bid, didn’t sell as well as expected. The company has reported 11 straight quarterly losses.

Pre’s Debut

After Palm introduced the Pre at the Consumer Electronics Show in January 2009, the stock jumped 80 percent in two days to $5.96 and climbed as high as $17.46 in September. The stock then dropped 74 percent, as Palm’s sales growth was outpaced by marketing costs and it lost market share to Apple and Google.

By March, when Palm said its current-quarter sales would be less than half of Wall Street estimates, some analysts began questioning the company’s viability.

Palm was founded in 1992 by Jeff Hawkins and Donna Dubinsky and was part of 3Com Corp. until a in 2000. Its current operating system, called WebOS, was built by Palm Chief Executive Officer Jon Rubinstein, who previously led development of Apple’s best-selling iPod media player. Rubinstein was recruited to Palm by Fred Anderson, Apple’s former finance chief and a co-founder of lead Palm investor Elevation Partners.

The company started selling its first WebOS phone, the Pre, in June 2009 and followed with the smaller, cheaper Pixi in November. The phones let users send e-mail, surf the Web, stream video and run multiple applications at the same time. Both devices were sold in the U.S. exclusively by Sprint Nextel Corp., the country’s No. 3 carrier, until Verizon Wireless began offering enhanced versions in January.