Palm Acquires Handspring

The boards of directors of Palm, Inc. and Handspring, Inc. today announced that they each have unanimously approved a definitive agreement for Palm to acquire Handspring. The Palm board also gave final approval for the spin-off of PalmSource, Inc.

Palm Inc. is currently made up of two divisions: PalmSource, a subsidiary responsible for developing and licensing the Palm operating system, and the Palm Solutions Group, a business unit responsible for designing, making and marketing Palm-branded handhelds.

Palm announced last year that PalmSource would be spun off as a separate company. Today, the Palm said this spin off would happen this fall. Handspring will merge with the remaining part of Palm, Palm Solutions.

The Handspring's Treo line of smartphones will not be renamed. After the merger, Palm Solutions will have three product lines: Treo, Tungsten, and Zire.

"This is a great day for the Palm Economy," said David Nagel, president and CEO of PalmSource. "The establishment of PalmSource as an independent company and the strengthening of our largest licensee mark an historic day in the handheld industry."

Rationale

Some of the reasons for the merger were fairly standard. Neither Palm nor Handspring is profitable right now and by combining and eliminating redundant programs and offices the two can save money. They also hope that sales of the Treo smartphone will increase when it carries the well-known Palm brand name. Plus, Palm Solutions will get all Handspring's best managers and engineers with plenty of expertise in making smartphones.

PalmSource is becoming a separate company to create a level playing field for all licensees. Currently, with both the Palm Solutions Group and PalmSource part of the same company, the two are open to charges of favoritism from the other Palm OS licensees. After the spin off, this will no longer be true.

Merger of Leaders

The merged company will be led by Todd Bradley, who is currently the head of Palm Solutions. It will have two business units: handheld computing solutions, led by Ken Wirt, currently a senior VP for Palm Solutions; and smartphone solutions, to be led by Ed Colligan, current president and CEO for Handspring. Jeff Hawkins, Handspring chairman and chief product officer, will become chief technology officer for the merged company.

Donna Dubinsky, CEO of Handspring, will join Palm Solutions' board of directors but apparently have no other role in the new company. Eric Benhamou will no longer be CEO of Palm Inc. but will be chairman of PalmSource and Palm Solutions.

Details of the Merger

Under the proposed terms of the transaction, and following the spin-off of PalmSource, Handspring's shareholders will receive 0.09 Palm shares -- and no shares of PalmSource -- for each share of Handspring common stock owned. Palm, Inc. will issue approximately 13.9 million shares of Palm common stock to Handspring's shareholders on a fully diluted basis. As a result of the merger, Handspring's shareholders will own approximately 32.2 percent of the newly merged company on a fully diluted basis, and Palm's shareholders will own approximately 67.8 percent.

The value per share to be received by Handspring shareholders will be based on the Palm share price following the spin-off of PalmSource. The spin-off of PalmSource will be completed immediately prior to the closing of the Handspring acquisition.

By combining with Handspring, Palm Solutions expects to save $25 million a year. Part of this will come from laying off about 125 people with redundant jobs, eliminating overlapping programs and unnecessary real estate, and the advantages of increased volume in manufacturing and distribution. Handspring employees are expected to move to Palm Solutions headquarters in Milpitas, Calif.

Related Links

• Palm and Handspring's Long And Winding Road
• First Glimpse of the Treo 600
• Brighthand's Predictions for 2003