UPDATED: Palm buys Handspring

By Matt Whipp

Posted on 4 Jun 2003 at 13:22

Handheld maker Palm has acquired rival and software licensee Handspring in a stock for stock deal and approved the spin-off of its PalmSource software arm.

In a deal that gives Handspring shareholders nearly one third ownership in the newly merged company, Palm shareholders will end up with around a 67.2 per cent hold. However, Handspring shareholders will not be receiving any shares of PalmSource, the lucrative subsidiary that handles the Palm operating system.

Andy Buss, senior consultant at Canalys, described the deal as 'not a major move, but a necessary one'.

Palm says the deal will strengthen its leadership and improve profitability, as well as adding Handspring's Treo range of communicators to its handheld device range.

'Their product lines are very different and so very complementary. It will allow Palm to compete more effectively against the likes of Nokia and Sony,' Buss concurred.

'It's a win-win situation for Palm. Palm doesn't want one of its licensees going bankrupt and while neither of the companies' stock has been performing well, this is really a rescue mission,' he said. 'Handspring would have struggled to survive and, as Palm has guaranteed funding to Handspring until the acquisition completes in the Autumn, this could indicate that Handspring was already in trouble.'

He said that Palm would benefit from Handspring's research and development into the 'communicator' market and keep Handspring's know-how from going to rivals. Although Handspring's reliance on a single type of device proved troublesome when that market fell into decline, or rather has yet to take off, adding such a product to Palm's roster would broaden its range and bolster its efforts to target the enterprise market.

The merger, which is expected to be completed in the Autumn will see operating efficiencies saving approximately $25m each year, with the loss of approximately 125 staff and the elimination of overlapping programs and real estate.

Handspring employees are expected to move to Palm Solutions' headquarters in California. Further details of the transaction will be revealed in a press conference this evening.

In early trading, Palm stock is up more than 14 per cent to $13.9.

Handspring was founded in 1998 by Jeff Hawkins, who also formed Palm Computing in 1994 and invented the first Palm Pilot.