Palm to Buy Handspring

Handheld computer company Palm announces plans to buy rival Handspring in a stock deal, as well as final approval for the spinoff of its PalmSource software division.

Handheld computer company Palm Inc. on Wednesday announced plans to buy rival Handspring Inc. in a stock deal worth about $169 million.

Palm, of Milpitas, Calif., also announced final approval for the spinoff of its PalmSource software division.

"The strategic choice of merging Handspring and the Palm Solutions Group of Palm will create the broadest portfolio and the most-experienced leadership team in the industry, fully capable of delivering value to customers, partners and shareholders," said Eric Benhamou, Palms chairman and CEO, and chairman of PalmSource.

Palm currently consists of PalmSource, which is in charge of the Palm OS, and the Palm Solutions Group, which is in charge of Palm-branded hardware.

The merger with Handspring will follow the PalmSource spinoff, officials said, and the company will be renamed thereafter. The transaction is expected to close in the fall. Headquarters of the new company will be Palms Milpitas, Calif., campus.

Handsprings shareholders will receive 0.09 Palm shares (and no shares of PalmSource) for each share of Handspring common stock they own. Palm will issue approximately 13.9 million shares of Palm common stock to Handsprings shareholders. After the merger, Handsprings shareholders will own approximately 32.2 percent of the newly merged company on a fully diluted basis, and Palms shareholders will own approximately 67.8 percent, officials said.

Palms relationship with Handspring has been circular. Handspring executives Jeff Hawkins and Donna Dubinsky founded Palm in 1992, following Hawkins invention of the Graffiti handwriting recognition language and the first Palm handheld device. In 1996, U.S. Robotics bought Palm, and in 1997 3Com Corp. bought U.S. Robotics. In 1998 Hawkins and Dubinsky left Palm to form Handspring, which competed directly with Palm. Still, Hawkins made it clear that the merger is not a happy homecoming, noting that the company has changed a great deal since he left it five years ago.

"This is not a reunion for me, and there is no nostalgia," he said on a conference call on Wednesday.

Handspring made a big splash with its initial device, the Visor, which included a novel but proprietary expansion slot called the Springboard. But the company had been struggling for the past few years as it tried to transition from the Visor to the Treo, a phone/PDA hybrid device.

Dubinsky, for her part, said the merger will give Palm a leg up in its relationships with wireless operators.

"Weve developed deep relationships with several major carrier partners," she said.

In the new Palm, Todd Bradley will continue in his current role as president as well as take over the role of CEO. The merged company will include two business units: handheld computing solutions, led by Ken Wirt, currently senior vice president of sales and marketing for Palms Solutions Group; and smartphone solutions, under the charge of Ed Colligan, current president and chief operating officer for Handspring. Hawkins, Handsprings chairman and chief product officer, will become chief technology officer.

(Editors Note: This story has been updated since its original posting to include comments from Hawkins and Dubinsky.)