HP coughs out $1.2 billion for struggling Palm

HP and Palm, Inc. (NASDAQ: PALM) today announced that they have entered into a definitive agreement under which HP will purchase Palm, a provider of smartphones powered by the Palm webOS mobile operating system, at a price of $5.70 per share of Palm common stock in cash or an enterprise value of approximately $1.2 billion. The transaction has been approved by the HP and Palm boards of directors.

The combination of HP’s global scale and financial strength with Palm’s unparalleled webOS platform will enhance HP’s ability to participate more aggressively in the fast-growing, highly profitable smartphone and connected mobile device markets. Palm’s unique webOS will allow HP to take advantage of features such as true multitasking and always up-to-date information sharing across applications.

So where’s this marriage going to go?

My take is that while Palm has, unsuccessfully, tried to reinvent itself over the past few years with handsets such as the Pre and Pixie, the company hasn’t managed to make much of a splash. Partly this is down to Palm being outmaneuvered by competitors such as Apple, HTC, Motorola and Nokia, but the biggest problem that Palm has has been crippled by not having a large enough ad budget or broad enough distribution channel compared to its competitors. This deal with HP should give Palm an enormous leg up.

But what’s in it for HP? Well, I can’t help but feel that the companies mobile devices line is somewhat stale, and bringing Palm onboard could mean a nice refreshed line of devices.

But is this partnership too little, too late? Apple is firmly entrenched at the leader of the pack when it comes to style, desirability and has a well-established platform and network of developers churning out apps. On top of this, we can expect a new iPhone to appear in June. RIM’s Blackberry also has firm roots in the enterprise market. On top of all this, Microsoft is getting ready to launch its Windows Phone 7 Series lineup of handsets, something which users have been hoping to see for a long time. Put all this together and all of a sudden HP/Palm is faced with an enormous mountain to climb.