US computer giant Hewlett-Packard, in a bid to become a player in the fast-growing smartphone market, said Wednesday it was buying struggling US mobile phone maker Palm for 1.2 billion dollars.

HP and Palm said Palm stockholders will receive 5.70 dollars in cash for each share of Palm common stock they hold at the closing of the merger, a premium of 23 percent over Palm's closing price on Wednesday in New York.

"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," HP executive vice president Todd Bradley said.

"The smartphone market is large, profitable and rapidly growing, and companies that can provide an integrated device and experience command a higher share," Bradley said in a statement.

"Advances in mobility are offering significant opportunities, and HP intends to be a leader in this market," he added.

In a conference call with financial analysts, Bradley said the "smartphone market is over 100 billion dollars and growing over 20 percent annually."

He said the widely praised Palm webOS mobile operating system would allow HP to expand "our breadth of products" from smartphones to netbooks to "slate," or tablet, computers.

Apple released its own tablet computer, the iPad, this month and has reported strong sales of the touchscreen multi-media device.

HP currently has a small presence in the mobile phone market with a device called the HP iPaq which runs on Microsoft's Windows Mobile operating system.

HP and Palm said that the acquisition has been approved by the boards of directors of both firms and was expected to close during HP's fiscal quarter ending July 31, 2010.

They said Palm's current chairman and chief executive Jon Rubinstein is expected to remain with the company.

"We look forward to working with HP to continue to deliver industry-leading mobile experiences to our customers and business partners," Rubinstein said.

"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," he said.

Palm's touchscreen Palm Pre smartphone, powered by the Palm webOS mobile operating system, won "Best in Show" at the annual gadget fair in Las Vegas in January of last year, but posted disappointing sales.

The Sunnyvale, California-based Palm has been the subject of acquisition rumors for months.

The takeover speculation heightened after Palm reported a third-quarter net loss of 22 million dollars last month, nearly doubling its loss of the previous quarter.

Palm came out with some of the first personal digital assistants in the 1990s, but in recent years has been lagging behind rivals Nokia, Apple and Research in Motion.

Reaction to HP's move was mixed with Forrester Research mobile analyst Charles Golvin giving it a thumb's down.

"The good news is that HP made a strong move toward becoming a player in the mobile market," he said. "The bad news is that it's the wrong move.

"HP doesn't need the Palm brand," Golvin said. "HP needs a strong presence in mobile, but Palm doesn't deliver that."

Jon Ogg of 247WallSt.com raised the possibility of another company coming forward with a bid for Palm.

"There are many potential buyers here, but the question will come down to if anyone is willing to pay up even higher for a company which many feel has very little value on its own," he said.

HP shares shed 0.83 percent to 52.84 dollars in after-hours electronic trading while trading in Palm was suspended.