Hewlett-Packard gets smart(phone)

Ending months of rampant speculation about who might buy Palm Inc., the beleaguered smartphone maker agreed Wednesday, April 28, to be acquired by Hewlett-Packard Co. for $1.2 billion in cash.

Generally, the deal received a positive reception, sending shares up some 26%. Nonetheless, there is no doubt that challenges lay ahead for HP, and there are some murmurs that a competing bid will surface.

2010

July 1: Hewlett-Packard Co. closes its $1.2 billion acquisition of smartphone maker Palm Inc. Palo Alto, Calif.-based HP said the deal, which was announced in April, will provide it with Palm's mobile operating system webOS, a portfolio of intellectual property and several smartphone product lines. - Olaf de Senerpont Domis

April 29: Palm Inc. shares trade like the company could receive a spoiler bid to trump Hewlett-Packard Co.'s $960 million offer for the struggling mobile device company.

Palm trails the iPhone and BlackBerry in its core market and ramped down revenue expectations for its current fiscal year in March. HP is paying $5.70 per share in cash for Palm, or about $1.2 billion including debt. Palm has long struggled in the smartphone arena, and recently its shares declined from about $10 in February even as speculation grew of a possible sale of the company. - Scott Stuart

Apr. 29: Shares of Palm Inc. climb 26% in afternoon trading to $5.85 as the market digests the news that Hewlett-Packard Co. would acquire the struggling smartphone maker for $1.2 billion.

Generally, the deal received a positive reception, as it supplies the Palo Alto, Calif.-based technology giant with a foothold in the smartphone industry and improved access to a market that is growing faster than most of its other product area. Nonetheless, there is no doubt that challenges lay ahead for HP. - Olaf De Senerpont Domis

Apr. 28: Hewlett-Packard Co. agrees to buy Palm Inc., the beleaguered smartphone maker, for $1.2 billion in cash. The $5.70 per share price represents a 23% premium over Palm's closing price of $4.65. The deal was announced after the market closed.

Feb. 4: Hewlett-Packard Co. and IBM Corp. are, according to Reuters, expected to scour the security software market for acquisitions that will boost their share of corporate IT budgets. Mary Kathleen Flynn and Olaf De Senerpont Domis

2009

Nov. 16: The rumor mill is abuzz with talk of insider trading after 3Com Corp. call trading jumped to a 26-month high four hours before Hewlett-Packard Co.  announced it would acquire the Ethernet switching provider for $2.7 billion. Now, according to Bloomberg, the Securities and Exchange Commission is getting involved. - Sara Behunek

Nov. 11: Hewlett-Packard Co. unveils an agreement to acquire struggling networking technology provider 3Com Corp. for $2.7 billion in cash. - Olaf De Senerpont Domis

2008

Hewlett-Packard Co. closed its $13.9 billion deal for Electronic Data Systems Corp. Aug. 26, suggesting, as Corporate Dealmaker's Suzanne Stevens noted, both companies are strongly behind it, given the short four-month period from announcement to completed deal.

Three months after Hewlett-Packard Co. settled a civil suit brought by the California Attorney General stemming from an investigation into the company's boardroom leak scandal, charges against the company's former chairman Patricia Dunn and three other defendants were dropped March 14.

Alongside Dunn, who resigned in connection with the matter, HP's former senior counsel Kevin Hunsaker, and private detectives Matthew DePante and Ronald DeLia will have charges dropped in exchange for 96 hours of community service.

Shortly after the news emerged from the Santa Clara County Superior Court, HP investors voted down changes to the company's bylaws that would have made it easier for shareholders with a stake of 3% or more eligible to nominate directors to HP's board. In February, the California Public Employees' Retirement System and the California State Teachers Retirement System, which together hold $1.2 billion in the tech giant's stock, began lobbying publicly for the proposal. CalPERS put a similar proposal in front of UnitedHealth Group Inc., which is itself trying to recover from a stock options backdating scandal. For more on the backdating options story, see a related Dealwatch.

Hewlett-Packard Co. said Dec. 7 it would pay a modest $14.5 million to settle a civil suit brought by the California Attorney General stemming from an investigation into the company's boardroom leak scandal--just weeks after reporting its net income for the fourth quarter leapt to $1.7 billion, or 325% beyond the $400 million it earned in the same period a year earlier.

HP wasn't found liable, but will pay $650,000 in statutory damages, $350,000 to reimburse the AG's office for investigation-related costs, and agreed to set in place some internal controls. The bulk of the settlement payment, however, $13.5 million, will go toward creating a privacy and piracy fund for the state of California.

All in all, HP's troubles haven't seemed to stop its dealmaking. In November, HP eked out its $4.5 billion acquisition of Mercury Interactive Corp. The deal was first announced in July, and a cash tender offer was extended four times before HP secured 96% of the target's shares in early November. Also HP had no difficulty closing the acquisition of gaming PC maker Voodoo PC for undisclosed terms on Oct. 31.

But, as The Deal's Scott Stuart points out, HP's $52 per share takeover of Mercury is more than just a $4.5 billion union, it marries two of the biggest scandals of late--HP's woes and an SEC investigation into Mercury for backdating options.

BRINGING IT TO LIGHT

During a September congressional hearing connected to the leak investigation, Dunn denied knowing the pretexting tactics employed by investigators she sanctioned were improper or illegal, she also expressed the belief that some of the methods involved in HP's probe are employed by other companies, as well. At the time, Florida Republican Rep. Cliff Stearns said the HP affair reminded him of Enron, according to a Washington Post article.

Earlier that day, HP's general counsel Ann Baskins resigned after 24 years with the company. The fourth to leave the company in connection with the investigation, she followed Dunn, internal investigator Anthony Gentilucci and Hunsaker out the door.

On Tuesday, Sept. 12, Dunn stepped down from the HP board, with CEO Mark Hurd replacing her as chairman, effectively drawing more media attention than Bristol-Myers Squibb Co.'s ousting of CEO Peter Dolan and general counsel Richard Willard after, most notably, a $2.5 billion accounting scandal. Days later, Dunn was inducted into the Bay Area Business Hall of Fame.

PROCEEDING WITH CAUTION

After IBM Corp.'s $1.3 billion purchase of security software maker Internet Security Systems Inc. in August, analysts suggested HP needed to boost its own holdings with a similar play.

The buzz comes just months after HP's chief financial officer Robert Wayman told The Deal it might employ some of its $14 billion cash on hand for hefty acquisitions. But since coming on board at HP last year, Hurd had been slowly making small-ticket acquisitions to fill out the company's portfolio. He has steered the company through several deals:

• In August 2005, HP grabbed Israeli printing technology maker Scitex Corp. Ltd. for $230 million.
• The next month, the company paid $425 million for Peregrine Systems Inc., which makes software aimed at several of the IT functions companies frequently want to automate, as well as storage area network management software maker ApplQ Inc. for undisclosed terms.
• In October 2005, HP took RLX Technologies Inc. for undisclosed terms.
• The next month , HP grabbed identity management software company Trustgenix Inc.
• Rounding out 2005, HP took German online photo site Bilderservice.de GmbH, just months after taking U.S. photo sharing company Snapfish.
• HP again went small in December 2006 with a deal for Chicago data warehousing technology maker Knightsbridge Solutions Holdings Corp. for undisclosed terms, and despite Hurd's comments the company should not be expected to make huge deals, analysts have not ruled out the possibility.

Dealwatch executive summary
The Date	The Action
8.26.08 3.14.07	HP-EDS a done deal. Charges against Dunn, others are dropped. Shareholder proposals are defeated.
12.12.06	HP says it's pursuing small deals; analysts won't rule out a larger one.
12.07.06	HP agrees to pay $14.5 million to settle civil suit.
11.15.06	Dunn pleads not guilty.
11.02.06	HP gets 96% of Mercury shares.
9.28.06	HP unveils plans to acquire Voodoo PC.
9.28.06	Former HP execs head for the Hill, as its general counsel resigns.
9.2006	HP and Mercury are dealmaking despite hot water.
8.25.06	IBM buys ISS; analysts suggest HP should make a similar play.
8.20.06	Joseph Bartlett suggests an alternative stock options strategy.
7.25.06	HP grabs Mercury.
5.24.06	HP has cash to burn.
12.2005	HP snaps up Bilderservice.de GmbH to compliment Snapfish.
11.2005	HP picks up identity management software company Trustgenix Inc.
10.2005	HP adds RLX Technologies.
9.2005	HP takes Peregrine Systems, ApplQ. (See related Deal Memo)
8.12.05	HP takes Scitex Corp. for $230 million. (See related Deal Memo)
Source: The Deal, press reports