For many years Hewlett-Packard and Palm competed for the place on the market of personal digital assistants (PDAs), but the smartphone era essentially ousted both: HP ceased to make PDAs and smartphones in the middle of the last decade, whereas Palm has been gradually losing market share. On Wednesday the two announced plans to become one: HP will acquire Palm in an attempt to create an ultimate mobile platform.

The combination of HP’s global scale and financial strength with Palm’s webOS platform will enhance HP’s ability to participate more aggressively in the fast-growing, highly profitable smartphone and connected mobile device markets, the two companies said. 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.

It is noteworthy that HP used Windows Mobile operating system on its PDAs and fiercely competed against Palm just 5 – 10 years ago. Windows Mobile platforms now competes against many other operating systems, including Apple iPhone OS, Google Android, RIM Blackberry and so on. Palm’s webOS has failed to become a robust solution for modern smartphones and sales of Palm Pre, the latest smartphone, from the company effectively failed on the market. As a result, it remains to be seen whether HP could revive the webOS.

“Palm’s innovative operating system provides an ideal platform to expand HP’s mobility strategy and create a unique HP experience spanning multiple mobile connected devices. Palm possesses significant IP assets and has a highly skilled team. The smartphone market is large, profitable and rapidly growing, and companies that can provide an integrated device and experience command a higher share,” said Todd Bradley, executive vice president of personal systems group at HP.

HP will purchase Palm 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.

“We’re thrilled by HP’s vote of confidence in Palm’s technological leadership, which delivered Palm webOS and iconic products such as the Palm Pre. HP’s longstanding culture of innovation, scale and global operating resources make it the perfect partner to rapidly accelerate the growth of webOS. We look forward to working with HP to continue to deliver industry-leading mobile experiences to our customers and business partners,” said Jon Rubinstein, chairman and chief executive officer of Palm.

Under the terms of the merger agreement, Palm stockholders will receive $5.70 in cash for each share of Palm common stock that they hold at the closing of the merger. The merger consideration takes into account the updated guidance and other financial information being released by Palm this afternoon. The acquisition is subject to customary closing conditions, including the receipt of domestic and foreign regulatory approvals and the approval of Palm’s stockholders. The transaction is expected to close during HP’s third fiscal quarter ending July 31, 2010.

Palm’s current chairman and CEO, Jon Rubinstein, is expected to remain with the company.

Tags: HP, Palm