Palm's new owner is a surprise

Hewlett-Packard is buying the company and plans to enter the smart-phone market.

By Kim Peterson Apr 28, 2010 5:18PM

Beleaguered Palm (PALM) finally has a new owner, and it's one few expected. Hewlett-Packard (HPQ) is buying the company for $1.2 billion.

With Palm under its belt, HP plans to make a big run in the smart-phone market. That's a bit of a shock, considering the company isn't a player in the mobile-phone business. Palm shareholders will get $5.70 in cash for each share when the deal is sealed, most likely by the end of July.

The news was announced after the market closed, but in after-hours trading Palm shares were up 27% at one point to $5.86. HP shares were down slightly.

No doubt Todd Bradley was instrumental in getting this deal passed. Bradley is executive vice president of the Personal Systems Group at HP, and was chief executive at Palm from 2002 through 2005, Cnet reported. The current chief at Palm, Jon Rubenstein, will be staying at HP, the companies said.

The deal was a surprise even in Silicon Valley, where folks thought HTC or Lenovo would buy Palm, VentureBeat reported.

 

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Palm has been struggling, and put itself up for sale after several bad quarters left it with more inventory than it wanted and diminished sales prospects. It lost customers to Research In Motion (RIMM) and Motorola (MOT), and its Pre Plus and Pixi Plus didn't exactly wow the market.

There's some good news here for U2 frontman Bono, tagged by 24/7 Wall Street as "the worst investor in America." Bono has thrown a giant wad of cash at Elevation Partners, which is Palm's main investor.

With this $1.2 billion sale, Elevation Partners comes out roughly intact, ZDNet reports.
Also, new numbers show that Palm's fortunes were just getting worse. The company said its fourth-quarter sales would be between $90 million and $100 million. That's shockingly low; analysts had been expecting around $164 million, ZDNet reports.

"Simply put, HP just saved Palm from near-certain doom," writes Larry Dignan.

So where does HP go from here? Certainly the company can try to make a dent in the iPhone's success, but that's a steep challenge, particularly given Palm's inability to attract consumers lately.

A better strategy would be to take full advantage of HP's enterprise expertise and make a run at Research In Motion, whose BlackBerry platform has been losing momentum.

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