By AppleInsider Staff

Published: 04:40 PM EST (01:40 PM PST)

HP announced Wednesday that it has entered into a definitive agreement to purchase struggling smartphone maker Palm in an all cash deal worth 1.2 billion.

Under terms of the agreement, HP will pay $5.70 per share of Palm common stock for a total of nearly $1 billion, or approximately $1.2 billion when Palm's debt is factored into the mix. The transaction has been approved by the HP and Palm boards of directors.

“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,” said Todd Bradley, executive vice president, Personal Systems Group, HP. “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. Advances in mobility are offering significant opportunities, and HP intends to be a leader in this market.”

HP believes that its global scale and financial strength combined with Palm’s webOS platform will enhance its ability to compete more aggressively in the fast-growing, highly profitable smartphone and mobile device markets. Among the features of webOS that HP is looking to leverage are multitasking and always up-to-date information sharing across applications, according to a joint press release from the two companies.

“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,” said Jon Rubinstein, chairman and chief executive officer, Palm. “We look forward to working with HP to continue to deliver industry-leading mobile experiences to our customers and business partners.”

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.

Palm vs iPhone

Palm was one of the original smartphone vendors, but let its platform slide off into irrelevance. In 2006 the company began licensing Microsoft's Windows Mobile, a move that nearly doubled Microsoft's market share but which did little to help Palm's struggling fortunes.

After Apple debuted the iPhone in 2007, Palm's products plummeted. Over the next year, Palm hired Rubinstein, who had served as the iPod chief at Apple, along with a number of Apple engineers, resulting in the development of the webOS.

While hailed as a major competitive threat to the iPhone at its launch, Palm failed to deliver high quality hardware and was slow to finish its SDK for third party developers. The rushed competitive effort fell flat with last summer's launch of the iPhone 3GS, leaving Palm's prospects uncertain. Cloud computing failures the company suffered through last fall only made things worse.

The only hope for Palm has been the idea that an established manufacturer would buy it and continue to invest in developing its novel smartphone operating system. HTC and Lenovo were considered frontrunners, but HP's purchase makes sense given that company's failed efforts to develop a strong presence in the smartphone category.

HP is a long term partner of Microsoft, but has seen little traction for its PDAs and smartphones based on Windows Mobile. Backed with a motivated, moneyed partner, Palm's webOS may be able to gain a significant profile that will make it a serious competitor to Android, Symbian and the upcoming Windows Phone 7 in their efforts to rival the iPhone and RIM's BlackBerry.

HP has never managed a significant software platform of its own, so the departure into becoming an integrated hardware and software company like Apple and RIM rather than just another device maker licensing other vendors' software like Dell or HTC will be a new role for the company.