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Palm Signs Deal To Purchase Its Rival Handspring

Palm announced it has signed a definitive agreement to purchase Handspring.

Both PDA companies said the merger would result in a single market leader with a wide product offering, including the phone-centric TREO brand of PDAs from Handspring and the data-centric handhelds of Palm.

At the same time, Palm said its board approved the spin-off of PalmSource, Palm’s OS and software company.

Under terms of a proposed stock-swap deal, the value of the sale would be $169 million, based on the value of Palm’s common stock per-share price last Tuesday. Final value of the sale will be determined by Palm’s share price following the spin-off of PalmSource.

The remaining Palm Solutions hardware company will merge with Handspring and retain its headquarters here. It will be led by CEO Todd Bradley, formerly president/CEO of Palm Solutions Group. It will be divided into two groups including a handheld computing solutions group led by Ken Wirt, currently senior VP of Palm Solutions Group sales and marketing, and a smartphone solutions group, led by Ed Colligan, currently president and COO of Handspring.

Jeff Hawkins, Handspring chairman and chief product officer will become chief technology officer for the merged company. Handspring CEO Donna Dubinsky will join the board of the new company.

All three current Handspring and Palm brands —TREO, Zire and Tungsten — will be retained, said Palm.

In the merger plan, shareholders of Palm will own 67.8 percent of the new company, while Handspring shareholders would own 32.2 percent.

Analyst Alex Slawsby for IDC, Framingham, Mass. said the acquisition is a positive move for both companies. “Handspring is rumored to be coming out with some compelling new devices — voice enabled product that resembles a single body phone. This is a good step because the more the unit looks like a true cellphone, the better the sales opportunities. Although Handspring has some good products coming out it only has enough cash to make it through the end of the year. So it certainly needed the lifeline.”

Ironically, about 10 years ago, Palm was founded by Handspring’s Hawkins and Dubinsky, who then left Palm in 1998 to start Handspring.

At a news conference, Bradley affirmed that the merger gives Palm Solutions new strength in the high growth segment of phone-centric PDAs, which is growing at a compound annual rate of approximately 76 percent, he said. Traditional handhelds are expected to grow at a rate of eight percent and data-centric PDA phones such as the Tungsten line, are expected to grow at a rate of 42 percent, he said.

Palm Solutions said the merged company would realize approximately $25 million in cost savings annually. The acquisition is expected to be finalized this fall.