2nd UPDATE: H-P To Acquire Palm For $1 Billion
29 April 2010 - 7:57AM
Dow Jones News
Hewlett-Packard Co. (HPQ) is placing a $961 million bet that it
can do more with Palm Inc.'s (PALM) critically lauded but
commercially troubled mobile software than the embattled smartphone
pioneer could do by itself.
H-P is making a large move into the smartphone world with its
agreement to acquire Palm for $5.70 a share in cash, which
represents a 23% premium to Wednesday's closing price. Including
debt, the deal is valued at $1.2 billion. Palm has been the subject
of takeover speculation for the past several months as its products
failed to make a dent with consumers.
Palm shares rose 27% to $5.86 in after-hours trading, above the
offer price, suggesting some investors are still holding out for
higher bids. H-P, meanwhile, fell 0.7% to $52.93.
In Palm, H-P gets a sophisticated and different mobile operating
system in WebOS that PC maker can use to set itself apart from the
dozens of handset makers that have jumped on Google Inc.'s (GOOG)
Android bandwagon. It also gets a healthy portfolio of mobile
patents and a talented team of developers led by Chief Executive
Jon Rubinstein.
Potentially, H-P could use WebOS on its touchscreen tablets; the
latest such effort, the Slate, uses Microsoft Corp.'s (MSFT)
Windows 7 operating system and has already suffered some negative
buzz.
H-P said it plans to continue working with Microsoft on its
smartphones.
"It puts H-P back in the game, but [Palm] is still wrought with
problems," said Maribel Lopez, an analyst at Lopez Research.
Palm demonstrated those challenges by separately cutting its
fourth-quarter revenue forecast by as much as 40%, well below Wall
Street expectations.
H-P CEO Mark Hurd hasn't been shy about striking big deals. In
2008, it purchased EDS for $13.9 billion for its IT services. In
November, it agreed to acquire 3Com for $2.7 billion to augment its
networking capabilities.
For Palm, it has been a long spiral downward towards the
eventual takeover. Rubinstein breathed new life into the company
when he came aboard as an executive chairman tasked to create a new
platform for the company. The Palm Pre, which was the first device
to use WebOS software, was unveiled more than a year ago to
critical acclaim and excitement.
But a launch that coincided too closely with the latest version
of the Apple Inc. (AAPL) iPhone and a weak carrier partner in
Sprint Nextel Corp. (S) kept the phone from true blockbuster
status. Its launch on Verizon Wireless earlier this year saw tepid
response, resulting in the carrier slashing prices of Palm's
products. Verizon Wireless is jointly owned by Verizon
Communications Inc. (VZ) and Vodafone Group PLC (VOD).
While Palm had placed the iPhone in its targets, it got lapped
by other platforms, including phones running on Android and the
myriad of Research in Motion Ltd. (RIMM) Blackberrys in the
market.
The company hired advisors and a number of Asian technology
companies, including HTC Corp. (HTCXF, 2498.TW) and Lenovo Group
Ltd. (LNVGY, 0992.HK), were reportedly interested in pursuing a
deal.
Palm, which helped pioneer the concept of melding PC-features
with a mobile phone, will now be responsible for propelling H-P's
mobile ambitions. The troubled company will have the benefit of
H-P's much wider distribution and stronger brand.
Separately, Palm disclosed that it expects fiscal fourth-quarter
revenue of $90 million to $100 million. It previously expected to
post revenue of $150 million. Wall Street, on average, had a fiscal
fourth-quarter revenue forecast of $165 million.
H-P expects the deal to close during the fiscal third quarter
ending July 31.
-By Roger Cheng, Dow Jones Newswires; 212-416-2153;
roger.cheng@dowjones.com
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