The Motley Fool Previous Page

Worst Deal Ever? Maybe!

Tim Beyers
April 29, 2010

How does Hewlett-Packard (NYSE: HPQ  ) justify spending $5.70 per share to acquire Palm (Nasdaq: PALM  ) when the underlying business might be worth zero? Here's how HP executive vice president and former Palm CEO Todd Bradley explained the deal in a statement issued yesterday:

Palm's innovative operating system provides an ideal platform to expand HP's mobility strategy ... And, 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.

So now Palm is on the same level as market heavyweights Apple (Nasdaq: AAPL  ) and Research In Motion (Nasdaq: RIMM  ) ? That's absurd. I'm flabbergasted. Gobsmacked. Discombobulated. And I'm not the only one.

"I just checked my watch to see whether it was running four weeks fast. But nope, it's not April Fool's Day," says my Foolish colleague Rich Smith.

Rich has good reason to be skeptical. He's the Fool who looked under the hood at Palm's earnings engine, and found nothing but busted cylinders and dead sparkplugs. But you don't need to do much math to know this deal is a stinker for HP shareholders, and a TARP-sized bailout for Palm owners.

Empty Palm
Since Rich broke out his calculator in February, Palm has lost market share and twice guided lower on revenue. You don't pay a 23% premium for a company that's bleeding out the way Palm is. Unless you're Todd Bradley.

It's almost funny to watch. Five years ago, Bradley left palmOne -- today's Palm was two separate companies back then -- after some carriers said there would be delays in rolling out the company's newest smartphone, the Treo 650. Bradley was the third executive in a month to resign from palmOne.

Fast-forward to today: Verizon (NYSE: VZ  ) and Sprint Nextel (NYSE: S  ) aren't ordering enough of Palm's Pre and Pixi handhelds. In an 8-K filed yesterday, Palm updated its fourth-quarter revenue guidance once more, to between $90 million and $100 million, down another 33% from the $150 million it predicted five weeks ago.

Oh, and did I mention that Palm's head of webOS development -- the "ideal platform" Bradley touts above -- is also leaving? Palm is like a record that's never left the turntable; it's just spinning, and spinning, and spinning. HP will be the new deejay.

The PC maker won't