HP Isn't Getting What It Paid For

So it's official: Palm (Nasdaq: PALM  ) will henceforth be known as the mobile devices division of Hewlett-Packard (NYSE: HPQ  ) . A majority of Palm's shareholders have approved the transaction, and the deal is expected to close tomorrow. Time flies when you're having fun.

But how much fun will Palm have under HP's big, rich umbrella? When the sale was first announced, I saw HP getting an insane value for the $1.2 billion it is spending on the mobile gadget designer. But then the brain drain started, and it keeps on going to this day: Palm has lost superstars left and right, including user interface wizard Matias Duarte going to Google (Nasdaq: GOOG  ) to help refine the Android platform. Last week, public relations VP Lynn Fox jumped ship without a set destination. Fox joined Palm after an illustrious career at Apple (Nasdaq: AAPL  ) , jumping Cupertino's ship back in 2008, following in the footsteps of current Palm CEO Jon Rubinstein and product development VP Mike Bell.

Palm put together an all-star team to develop the Pre smartphone. The quality of that product was never in question, but a failed marketing strategy that hitched Palm's fortunes to the stalled engines of Sprint Nextel (NYSE: S  ) led to HP playing the white knight with a generous buyout offer. And now that Palm finally gets the financial backing it needs for running a successful product launch, the superstars are leaving the ship.

HP is no longer buying awesome talent for a song, but rather overpaying for a lackluster brand and a patent portfolio that holds some value but little hope for further improvement. I don't know what HP could have done to prevent the top-level exodus, but surely Mark Hurd and company could have done something to protect the value of this rather substantial purchase. 

This talent hemorrhage is an all-too-common sight in Silicon Valley as buyers often seem to just assume that everybody wants to work under their wonderful regime. This time, it happened despite a friendly merger agreement; when Microsoft wanted to buy Yahoo! a couple of years ago, that hostile proposal raised the hackles of every purple-blooded yahoo. The bleeding arguably killed the deal in the end.

Will the next billion-dollar tech buyout see another batch of big-name talent departures, or will the big boys of technology finally learn their expensive lesson? Only time will tell, but you can prognosticate your heart out in the comments box below.

Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. Microsoft and Sprint Nextel are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers selection. Apple is a Motley Fool Stock Advisor pick. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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  • Report this Comment On June 29, 2010, at 3:28 PM, AnalystSSG wrote:

    It is confusing!

    HP and shareholders are getting absolutely what they are paying for - current M&A strategy.

    HP has paid for numbers which add up to HP's financial statements, including ill-founded goodwill and its internal re-evaluation policies, which are used for financial engineering.

    Key people leave as they understand that HP is now a reseller (not adding any real value to products and not much to services buying everything in china/india - including "invent") and know that they can have better destiny being independent or they have already prepared better opportunities (rank, pay, growth, intellectual potential ...).

  • Report this Comment On June 29, 2010, at 9:19 PM, dshazam wrote:

    No big surprise here. No one wants to work at HP; it is a job only until you can find a career. The life has been sucked out of the commpany and everyone knows they are just another cost to be cut later.

  • Report this Comment On June 30, 2010, at 4:42 AM, PAVELPLACHKY wrote:

    HP cannot and would not do anything prior to the deal closing. If they had not bought the company yet, they cannot offer retention packages, jobs, roles etc. Theoretically they could require Palm to secure their key talent as part of the negotiations, but that is difficult, because the negotiations have to remain secret until the deal is announced.

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