Palm Inc Acquires Handspring

The Boards of Palm Inc and Handspring today announced that they each have unanimously approved a definitive agreement for Palm to acquire Handspring to form a new, stronger market leader in mobile computing and communications. The Palm board also gave final approval for the spin-off of PalmSource, Inc.

Palm's board also approved the spin-off of its PalmSource unit, which makes the operating software for Palm's handhelds. Following the spin-off, Palm will swap 0.09 share of its common stock for each Handspring share.

"These two bold moves will serve as a powerful catalyst to transform the landscape of the handheld industry. 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, Palm, Inc. chairman and chief executive officer, and chairman of PalmSource. "And the spin-off of PalmSource will help grow the Palm Economy, attract additional licensees and unlock shareholder value."

Immediately following the completion of the spin-off, Handspring will be merged with Palm, and the merged company will be renamed later in the year. The transaction, encompassing the spin-off of PalmSource and the merger of Handspring with the remaining Palm Solutions Group of Palm, is expected to close in the fall, subject to certain conditions.

Stock Swap
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.

Acquisition Rationale
The merger is designed to create a stronger competitor in handheld computing and communication solutions. Palm Solutions will become better able to realize its stated objectives of growing the market, maintaining industry leadership, and achieving consistent profitability. The strategic and operational benefits to the merged company include:

• Maximizing Palm and Handspring's combined scale and operational excellence to take full advantage of future growth opportunities;
• Delivering an unmatched portfolio of innovative mobile products from traditional and multimedia handhelds to wireless handhelds and smartphones;
• Adding Palm's strong brand and distribution channels to Handspring's highly regarded Treo product line and carrier relationships; and
• Enhancing the Palm management team -- including hardware and software design, engineering, and marketing -- to help drive handheld computing into deeper and broader solutions.

The merged companies expect greater revenue opportunities. They also expect to obtain improved operating efficiencies of approximately $25 million in cost savings annually. The cost savings assume combined employee reductions of approximately 125 people, elimination of 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.

Merger of Leaders
"This is a merger of leaders -- the world's leading maker of handheld computers and a global leader of Palm OS based smartphones," said Todd Bradley, Palm Solutions Group president and chief executive officer. "Having the best and broadest portfolio of innovative products that deliver what matters most to customers, sold by a robust channel and built from a foundation of operational excellence, is the best formula to expand our young, promising markets."

"Palm and Handspring share a vision that handheld computers and smartphones have the potential to redefine the landscape of personal computing," said Donna Dubinsky, chief executive officer of Handspring. "This merger brings together the best teams in the industry, and strengthens us to realize this vision."

The merged company will be led by Bradley, who will continue as president and chief executive officer, and will be structured around two business units: handheld computing solutions, led by Ken Wirt, currently senior vice president, sales and marketing, for Palm Solutions; and smartphone solutions, to be led by Ed Colligan, current president and chief operating officer for Handspring. Jeff Hawkins, Handspring chairman and chief product officer, will become chief technology officer for the merged company.

Board Composition
Upon execution of the spin-off and closing of the merger, the Palm Solutions board of directors will consist of seven members from the current Palm, Inc. board plus three members of the current Handspring board of directors: John Doerr, Bruce Dunlevie and Dubinsky. David Nagel, PalmSource president and chief executive officer, will leave the Palm, Inc. board. Benhamou will continue as chairman of the PalmSource board, and of the merged company board.

Spin-off Rationale:
The separation of PalmSource from Palm, Inc. is based on three principles. They are that:

• Clarity of focus and mission for both Palm businesses leads to improved execution;
• Creation of a level playing field among current and future licensees will lead to more licensees and developers who have deeper commitments to the Palm OS platform. This is expected to bring greater growth in the Palm Economy, especially as the market for smartphones emerges; and
• Shareholder value can be enhanced if investors could evaluate and choose between both businesses separately, thereby attracting new and different investors.

"This is a great day for the Palm Economy," said David Nagel, PalmSource president and chief executive officer. "The establishment of PalmSource as an independent company and the strengthening of our largest licensee mark an historic day in the handheld industry. As the leading mobile platform provider, we look forward to the opportunity to attract new customers and to grow the market for mobile computing and communication products."

Transaction Detail
The spin-off of PalmSource and acquisition of Handspring will be combined into one transaction. First, all of the shares of PalmSource owned by Palm will be distributed to Palm shareholders. Second, following the spin-off, Palm will issue approximately 13.9 million shares to Handspring shareholders in exchange for their Handspring shares.

The completion of the acquisition is conditioned upon, among other things, the expiration or termination of the waiting period under the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, foreign anti-trust regulatory filings, approval from shareholders of Palm, Inc. and Handspring, listing of PalmSource shares on the Nasdaq Stock Market and other customary closing conditions. Shareholder votes are expected to take place at the two companies' respective stockholder meetings to be held in the fall.

Palm has received voting commitments from Dubinsky, Hawkins and Colligan -- the three largest employee stockholders -- to vote certain of their shares amounting to a total of 37.5 percent of Handspring's outstanding common stock in support of the proposed merger.

As part of the merger agreement, Palm will provide an initial $10 million line of credit to Handspring for working-capital purposes until the transaction closes. Under certain conditions, the line of credit may increase to $20 million, and its maturity may be extended.

The proposed spin-off is expected to be tax-free to Palm and the Palm shareholders, and the proposed acquisition of Handspring is expected to be tax-free to shareholders of both companies for U.S. federal income tax purposes.

Thanks to the many, many readers who sent in the news.