After rampant speculation about HTC and Lenovo acquiring Palm, the ailing handset maker is finding a home at a company that wasn't mentioned as a heavy contender: Hewlett-Packard. On Wednesday afternoon, HP announced plans to acquire Palm for about $1.2 billion, or $5.70 a share.
That's nearly a 25 percent premium on Palm's stock price. The news caused HP's stock to dip one percent, but HP is betting on CEO Mark Hurd's ability to successfully integrate mergers and turn Palm into a powerhouse asset for the computer maker.
Todd Bradley, executive vice president of the personal systems group at HP, said Palm's webOS operating system is the ideal platform to expand HP's mobility strategy and create a unique HP experience that spans multiple connected devices. There was no mention of HP's upcoming tablet computer, but analysts agree that webOS sets the stage for competitive products.
"Palm possesses significant IP assets and has a highly skilled team," Bradley said. "The smartphone market is large, profitable and rapidly growing, and companies that can provide an integrated device and experience command a higher share. Advances in mobility are offering significant opportunities, and HP intends to be a leader in this market."
HP's Integration Challenge
HP believes its global scale and financial strength combined with Palm's webOS will help the company compete more aggressively in the smartphone and mobile-device markets.
With the Palm acquisition, HP is throwing down the gauntlet. HP could set out to compete against Research In Motion in the business market and Apple in the consumer market in a way it hasn't been able to with its iPaq business mobile phones. With Palm's webOS, HP can take advantage of features such as true multitasking and always-up-to-date information sharing across applications.
"This is a very important deal. HP is now a major player in the mobile space and this is a great fit," said Michael Gartenberg, a partner at Altimeter Group. "HP has the scale and the resources to make this work. Palm had the technology but didn't have the resources or the scale to compete effectively. The mobile landscape just took another sharp shift in an unexpected direction."
Gartenberg agrees that Palm will be an asset for HP in the mobile-platform wars, calling webOS an interesting platform for other connected devices, including tablets and netbooks. When combined with HP's consumer and corporate-services offerings, he said, the Palm acquisition becomes a compelling story.
"The key challenge for HP is going to execute on this quickly to take advantage of what's happening in the marketplace," Gartenberg said. "This is something HP has to make happen very quickly. This can't be a multiyear integration and acquisition. HP is going to have to capitalize on this in a speedy way."
Rubenstein Bullish on HP Deal
The transaction is expected to close during HP's third fiscal quarter ending July 31. Palm Chairman and CEO Jon Rubinstein is expected to remain with the company. Rubenstein was bullish on the deal, saying he is thrilled by HP's vote of confidence in Palm's technological leadership.
"HP's long-standing culture of innovation, scale and global operating resources make it the perfect partner to rapidly accelerate the growth of webOS," Rubinstein said. "We look forward to working with HP to continue to deliver industry-leading mobile experiences to our customers and business partners."