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 be paid much for its efforts. According comments made during yesterday's Q&A with analysts, Palm won't add to HP's earnings till after fiscal 2011.

Greasy palms
I don't get it. Today's Palm isn't in any better shape than palmOne was when Bradley set sail for calmer waters. How could he let HP pay so much for so little?

Maybe Bradley wasn't privy to the negotiations (unlikely). Maybe higher ups got a nice song-and-dance from Bono, the U2 singer who is an investor in Palm through Elevation Partners (more likely). In June of 2007, Bono's firm invested $325 million in exchange for a 25% stake in Palm, and then pledged another $100 million the following winter.

You'd think that with the beating that Palm's shares have taken in the years since, Elevation would be exiting its stake licking its wounds. Far from it: According to reporting by The New York Times, Elevation gets $485 million, a modest return on the estimated $460 million it invested.

For the record, yesterday I asked a Palm spokesperson for clarity on how Elevation would be cashed out. The promised answer hasn't arrived yet. Color me shocked.

A wallflower at the developers' ball
Finally, and most troublingly, developers just don't love webOS they way they love iPhone OS and Android. You'll find just three pages of webOS apps at this directory. While not officially reported, the total number of webOS apps is likely in the low thousands. By contrast, Apple has more than 200,000 iPhone apps available via iTunes. Android now boasts more than 50,000 apps.

Bradley says HP is buying Palm so that it can use webOS as a pervasive platform not only for smartphones, but also for tablets and other mobile devices. That's a nice idea, but it'll require HP to court and win developers to webOS, and HP has no history of getting coders to love its stuff. Apple doesn't have that problem. Neither does Google (Nasdaq: GOOG). Both have to lose something in order for HP to win with this deal. I'm skeptical that they will.

On balance, I've got no issue with HP buying Palm. The company needed a suitor, and now it has one. My beef is with the price HP is willing to pay. Palm isn't worth $1.2 billion. Bradley, of all people, should know this better than most.

What would you be willing to pay for Palm? Discuss in the comments box below.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.