Earlier today, HP (NYSE: HPQ) announced that it will purchase Palm, Inc. (NASDAQ: PALM) for $1.2 billion. Palm, a provider of smartphones powered by the Palm WebOS mobile operating system, closed at $4.63 today. However, the stock price has jumped up well over 25% in after hours trading, pushing the stock price to almost $6 a share.

The transaction has already been approved by the HP and Palm boards of directors. HP believes that acquiring Palm will give them the ability to participate more aggressively in the fast-growing, highly profitable smartphone and mobile device markets. They are hoping that Palm’s unique WebOS will allow HP to take advantage of features such as true multitasking, and always up-to-date information sharing across applications.

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 acquisition is subject to customary closing conditions, including the receipt of domestic and foreign regulatory approvals and the approval of Palm’s stockholders. HP expects the transaction to close during their third fiscal quarter, which is July 31, 2010. Palm’s current chairman and CEO, Jon Rubinstein, is expected to remain with the company.

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