April 30, 2010 – The Real Logic Behind Hewlett Packard’s Takeover of Palm

Featured Trades: (PALM), (HPQ), (AAPL), (RIMM), (CHA), (GS)

4) The Real Logic Behind Hewlett Packard's Takeover of Palm. I think that Hewlett Packard's (HPQ) takeover of Palm (PALM) for $1.2 billion speaks volumes about the future of technology in the global economy. While HPQ's late entry into the sector so they can go head to head with Apple's (AAPL) I Phone and Rim's (RIMM) Blackberry has puzzled many, I think it makes all the sense in the world. The planet is going mobile, dumping desktops for smart phones, and often not even bothering with the interim steps of laptops and notebooks. This has already happened in China, where the majority of Internet users gain access by phone (see China Telecom (CHA)). HPQ probably had to decide to go mobile, or get out of computers completely. The move gives HPQ a three-year head start in the sector, bringing in many top rate engineers and marketers in one fell swoop. Whitney Tilson of hedge fund T2 Partners, which has a large short position in Palm, thinks HPQ is overpaying, and could have got the troubled company $1 billion cheaper by waiting a year. Maybe that's just sour grapes. Historically, it is true that acquiring companies get taken to the cleaners 2/3 of the time. Who is representing Palm in the deal? Why, that great seller of overpriced assets, Goldman Sachs (GS), of course!