HP acquires Palm for $1 billion

Smart phone company bought out by Hewlett-Packard

SAN FRANCISCO (AP) — Palm Inc. a pioneer in the smart phone business that couldn’t quite make the comeback it needed, has agreed to be bought out by Hewlett-Packard Co. for about $1 billion in cash.

The companies announced Wednesday that the deal will see HP pay $5.70 for every Palm common share. Palm had closed trading Wednesday at $4.63 but traded as high as $18.09 in the past 52 weeks.

When debt is included, the deal values Palm at $1.2 billion.

The transaction is expected to close by the end of July.

Palm was founded in 1992 by Donna Dubinsky and Jeff Hawkins and helped originate the handheld computing market with its Palm Pilots in the 1990s. But after Palm went through repeated reshufflings – it was bought by U.S. Robotics, a modem maker that itself was bought by 3Com Corp. in 1997, and then spun off again as its own company in 2000 – other companies took control of the market. In recent years Palm struggled to turn around its smart phone business as consumers flocked to such devices as Apple Inc.’s iPhone and Research In Motion Ltd.’s BlackBerry. More recently, phones that use Google Inc.’s Android operating software added new competition.

Palm got itself into position for a turnaround last year, when it released a sleek, new touch-screen smart phone called the Pre and fresh operating software for it that won good reviews. But consumers still were slow to embrace the Pre and its newer, smaller sibling, the Pixi. In the most recent quarter, Palm sold just 408,000 phones – down 29 percent from the previous quarter.

By comparison, Apple sold 8.75 million iPhones during its most recent quarter.

HP hopes Palm’s webOS operating system, which runs the Pre and the Pixi, will help it participate more aggressively in the fast-growing market for Internet-connected mobile devices. HP has a line of phones called the iPAQ, but it had one-tenth of 1 percent of the worldwide cell phone market last year, according to IDC. HP shipped just 100,000 units.

A greater role in mobile products would give HP CEO Mark Hurd another way to enhance his company’s ability to be a wide-ranging player in both consumer products and business technology services. Since taking the job in 2005, Hurd has made HP into the world’s largest information-technology company with a mixture of cost-cutting maneuvers and acquisitions, such as the $13.9 billion buyout of Electronic Data Systems in 2008.

HP said Palm’s current chairman and CEO, former Apple Inc. executive Jon Rubinstein, is expected to remain with the company.

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