Pinnacle will pay approximately $40 million for the division, with around two-thirds of the payment coming in the form of Pinnacle stock. As a result, HP will become one of the largest investors in the Mountain View, California, company, according to Art Chadwick, the company's chief financial officer.
The transaction is slated to close in early August.
With the acquisition, Pinnacle will be able to significantly expand its hardware product line. The company has historically concentrated on video tools for editing and special effects, among other purposes.
More recently, Pinnacle has ventured into broadcast video servers, computers built to store TV programs, movies, and other data in digital form and then replay the data in the acceptable analog format. TV broadcasters and Internet sites with streaming video capabilities form the bulk of the customers for these devices.
HP's strong suit in this market has typically been its storage technology, Pinnacle executives said. "The Internet will be the largest play-out mechanism for video," said Chadwick in a conference call. Digital TV is also expected to boost the market.
Under the agreement, Pinnacle will obtain HP's MediaStream product line, intellectual property including MPEG2 video compression patents and other assets, said Chadwick. HP video customers include DirecTV, Turner Broadcasting, and Canopus.
Most of the management team will also transfer from HP to Pinnacle, he added.
"The synergies in our two businesses made it readily apparent that we could capitalize on our mutual strengths by simply eliminating barriers between us and combining our two digital video groups," said Tom White, vice president of HP's communications solutions group, in a prepared statement.
HP, of course, is also in the middle of a major reorganization designed to streamline the massive company into more focused departments.