Palm and HP seem like the happiest of corporate couples right now, but theirs was a heated courtship: according to Palm's latest statement to shareholders, a total of 16 companies were contacted about a deal, and HP was the winner of a month-long bidding war that involved serious offers from five companies -- a bidding war that involved Jon Rubinstein personally warning HP that it had to "significantly and immediately" increase its offer to remain in the game. What's more, HP's winning bid came in at just 20 cents a share more than its primary rival. Yeah, it's juicy -- read on for the full blow-by-blow.
•Palm recognized that it was in trouble in early February, a few weeks before it posted its disappointing quarterly results, and on February 17 the company organized a committee headed by CEO Jon Rubinstein to investigate its options -- everything from licensing webOS to selling the company was on the table.
•From February 25 to April 1, Palm's management and consultants talked to a total of 16 companies about doing a deal. Five companies including HP ultimately got to the point of making offers, but only HP is publicly named in the filing -- the other suitors are referred to as Companies A, B, C, and D. Palm was most interested in HP and Companies A and B, while C and D initially only wanted to acquire Palm's patents. It's not clear when D dropped out.
•Palm's board of directors decided that selling the company was the best option in early March. The board thought about selling patents and / or licensing webOS, but decided against it because licensing would dilute the value of Palm's IP and fail to address long-term problems like scale and resources, and management was told to tell potential buyers that they should focus on an "outright acquisition." If you're keeping track, that's the exact opposite of what Jon Rubinstein was saying on April 22.
•HP made its first offer on April 13, for $4.75 per share or about a billion dollars, and requested a 30-day period of exclusive negotations. Company A followed up on April 15 with an offer of $600 million in cash, and Company B proposed a stock-for-stock deal that would take longer than the other deals.
•After receiving the offers from A and B, Palm told HP that it wouldn't give it an exclusivity period unless it improved its offer, and HP declined. At the same time, Palm decided that neither A nor B's proposal were of any value to its shareholders, and told both companies that they weren't competitive. A and B then dropped out of the game.
•On April 18 Company C offered between $6 and $7 per share with a proposed transaction to take place within 14 days, and on April 19 Palm sent both HP and Company C draft merger agreements.
•Palm and HP senior management held meetings on April 20 and 21, resulting in HP upping its offer to $5 per share on April 22. Later that day, Company C dropped its offer to $5.50 and sent Palm a revised merger agreement that contained several worrisome provisions, including a longer, riskier transaction timeline and a $60 million penalty if the deal didn't go through. Palm and Company C engaged in "extensive negotiations" from the 23rd to the 25th, but never managed to work out a compromise.
•While that was going on, on April 24th Jon Rubinstein and his advisors directly told HP that its offer wasn't competitive and that it had to "significantly and immediately" improve its offer in order to remain in the game. HP responded by raising its offer to $5.70 per share (the winning bid) later that day, and Jon Rubinstein told Company C that he had a better offer on April 25th.
•Company C told Palm it wasn't raising its acquisition offer, but offered to buy patents and take a nonexclusive license to webOS for $800 million. The board considered that proposal on the same day and declined.
•From that point on it was all HP -- the two companies negotiated from April 24 to April 28, when the merger was approved by Palm's outside accountants at Goldman Sachs and announced to the world.
Yeah, it's a crazy story, and it gets even wilder: Palm says Company C never signed an NDA, so it's more than likely we'll eventually find out who it was. Your guess is as good as ours -- Lenovo? ZTE? Dell? Either way, it looks like HP pulled this off in the nick of time.
