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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.

New LeadershipPalm'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.

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Here they come!

geoken @ 6/4/2003 10:59:57 AM #
I can't wait to see the comments on this one. I hope the server is large enough to take the load!
George

RE: Here they come!
ozz @ 6/4/2003 4:51:25 PM #
*\0/* Hurray! *\0/* Hurray!

Sweet

HeavyUser @ 6/4/2003 11:03:33 AM #
Here is the first one:

Woooo-hoooooo !!!!!!

RE: Sweet
Best of Bread @ 6/4/2003 11:23:59 AM #
This is a great move!! Consolidation is the sign of a maturing industry with increased focus on standardization.

Way to go Palm!!

Pilot/Palm Pro/Palm VII/m505/Tungsten T

RE: Sweet
PalmPowered @ 6/4/2003 4:12:09 PM #
It's about time they got back together. With Palm's new kick-a** attitude and product lineup and Handspring's group of founding gurus, it should be a match made in California. But to be a little on the cautious side, I hope Handspring's management doesn't get fed up with things again and go off on their own to try and start another one.

Anyone know what the name of the new merged company is really going to be?

Palm IIIe/IIIxe/Vx/m500/m505/m515/m550/Tungsten C

RE: Sweet
mondo @ 6/4/2003 7:31:49 PM #
I notice that Jeff Hawkins and Ed Colligan have full time positions, but Donna Dubinsky seems to be a board member without a fulltime position. As CTO, Hawkins should be in his field.

I think the first time round, the big problem was that Palm was part of 3Com, and as such JH,DD and EC were fed up with the big corporate issues. Now they'll be back in a standalone PSG, and will have a lot of autonomy

-----
mondo
Downunder

RE: Sweet
MSTCrowT @ 6/4/2003 8:58:53 PM #
Jeff is CPO (Chief Product Officer) of Handspring, not CTO.

RE: Sweet
blueBlade @ 6/4/2003 9:57:35 PM #
Do you think a company the size of Palm Inc should have so many chief? Gawd, talking about inflation of title.
RE: Sweet
wheels_nospam_61 @ 6/4/2003 10:04:54 PM #
Taste Great! No Less Filling!

This is a step in the right direction. It's still too bad that 3Com spun off Palm only after Hawkins, Dubinsky and Colligan left to form Handspring. IMO Handspring was left with little cash to sustain in the dot.com fallout, Palm lost the visionaries that created the company. I'm confident that the folks in both companies will make this work.

Jeff H. if you are reading these posts ---- Treo 6XX with Phone, MP3 Player, 32MB+, SDIO support (WiFi & Bluetooth) would be a big plus. -----

Pilot 5000/Palm Pilot Pro/Palm III/Visor Deluxe/Visor Platinum/Visor Prism +WDL/Tungsten C*/


*Still in the box unused awaiting the Treo 600 or any new Treo that is OS5 or above, 32MB+, MP3, SDIO (WiFi & Bluetooth) and is supported by someone other than Sprint.


RE: Sweet
markgm @ 6/5/2003 12:16:35 AM #
I hope Handspring's management doesn't get fed up with things again and go off on their own to try and start another one.

Them getting fed up and leaving is what got me interested in the Palm platform, and they got my feet wet with the Visor. 8 versions later, I'm looking for something to replace my Clie.

RE: Sweet
xolstis @ 6/5/2003 1:49:42 AM #
PalmSprings?

-the harbinger-

You Could See it Coming

LiveFaith @ 6/4/2003 11:21:29 AM #
HS abandons the PDA only market for the smartfone market ... Palm SG only develops "data-centric" fones. Apparently, a few backdoor meetings have been going on for quite a while.

Pat Horne; www.churchoflivingfaith.com
RE: You Could See it Coming
LiveFaith @ 6/4/2003 11:41:59 AM #
Intersting. Both stocks up in early trading. That's not usually the case on mergers / acquisitions? Investors see the possibilities and good fit.

Pat Horne; www.churchoflivingfaith.com
RE: You Could See it Coming
Best of Bread @ 6/4/2003 11:48:26 AM #
Nope.. the market is simply going crazy with blind optimism today.

Pilot/Palm Pro/Palm VII/m505/Tungsten T(with T68i)
RE: You Could See it Coming
StudentDoc @ 6/4/2003 11:52:18 AM #
Yeah, I am not sure if real investors are seeing anything in the merger or if it is just standard speculation.

BTW, I just read that Palm gave Handspring 32% of the new company. You have got to be kidding me. Since when is a failing company with loads of debt and no products worth $100+ million and a third of a much larger, possibly profitible comany (with better management)? Five years ago, I would agree that Handspring had the better management, but their record has left a lot to be desired too. Palm's own decisions make me question the future of Palm more than anything that Microsoft and Pocket PC do.

RE: You Could See it Coming
MV-Jon @ 6/4/2003 11:55:35 AM #
This merger is a definite win. Just the cost savings alone by eliminating dulplicity will boost the stock price.

Jon Niola
President/CEO
Media Vortex, Inc.
RE: You Could See it Coming
StudentDoc @ 6/4/2003 12:00:11 PM #
Jon, I don't mean this in a rude way, but how can merging two companies that lose money then cutting a portion of the new larger companie save money? Handspring brings nothing to the table but dead weight! They have not had any new products in a while and are only rumored to have any planned. They were obviously on the way out and good riddance. This is just more corporate buddy-buddy welfare, transfering 1/3 of Palm's worth to the unfortunate owners of Handspring and their "management."

RE: You Could See it Coming
MV-Jon @ 6/4/2003 12:10:47 PM #
It is an issue of cost savings. Both companies have marketing, HR, finance, and many other duplicate departmnets. There will be cost savings there. Handspring has a successful Treo line that would benefit from having a larger company like Palm to brand and market.

There are the intangibles too. The two founders, Jeff and Donna, they bring a lot of innovation to the table.

It may not look like a great merger to you, but give it time. I think you will be suprised to see how this all works out.

Also, just because they combined into a new company, don't rule out the newly combined company being acquired by an even larger company - think Apple...


Jon Niola
President/CEO
Media Vortex, Inc.

RE: You Could See it Coming
StudentDoc @ 6/4/2003 12:33:50 PM #
Good thoughts...maybe good things will come of it. We will see. I am still a little shocked, though.

RE: You Could See it Coming
kevdo @ 6/4/2003 2:58:20 PM #
Apple is actually a good example of two money-losing companies (Apple circa 1996 and NeXT) merging and gaining a founder back into the fold.

Apple's done pretty well over the last few years...

-Kevin Crossman

RE: You Could See it Coming
mikecane @ 6/4/2003 5:33:36 PM #
Apple's done real well:

"The Cupertino, Calif.-based company said it lost $8 million, or 2 cents per share, on revenue of $1.47 billion for the three months ended Dec. 28. That compares with a net profit of $38 million, or 11 cents per share, on revenue of $1.38 billion for the year-earlier quarter."

http://news.com.com/2102-1040-980841.html

Let's not forget a market share rapidly shrinking to nil. Or that of the Cargo Cultists.

RE: You Could See it Coming
blueBlade @ 6/4/2003 6:27:28 PM #
In case nobody notices, AAPL is sitting on 4.53 Billion cash. They can afford to screw up once in a while worth ten or so million dolars.

Palm on the other hand has 264M and at once was burning cash in the range of a hundred M.

The magnitude of the problem is totally different. No wonder that sakamon dude bail but while he can.

RE: You Could See it Coming
hotpaw4 @ 6/4/2003 6:31:58 PM #
Someone wrote:
> Let's not forget a market share rapidly shrinking to nil.

Apple's market share has been *increasing* in several market segments. Note that their revenues went *up* when many other tech companies were seeing falling sales during the same period. That's hardly a good description of shrinking to nil (Try CBM/Amiga, there's a much better example for you).

RE: You Could See it Coming
blueBlade @ 6/4/2003 6:48:46 PM #
It increases from 5 to 6 percent. wow, now that's a killer.

POS is about to lose momentum. they hang on to 4.2 too long, OS5.0 is not reaching critical mass fast enough, and 6.0 is sitll in question.

If developer decide POS is a basket case, then the platform is over. It's just a niche player.

Like I say OS 6.0 before christmas, at least a cool hardware that people deeply associated with OS 6.0 (upgradable by Jan/Feb), or the entire thing will slide into oblivion.

Palm doesn't have the cash and muscle to fight from minority market share.

Will Handspring cut lisencing fees?
gfunkmagic @ 6/4/2003 6:49:58 PM #
Quote: "It is an issue of cost savings. Both companies have marketing, HR, finance, and many other duplicate departmnets. There will be cost savings there. Handspring has a successful Treo line that would benefit from having a larger company like Palm to brand and market."

What about HS's PalmOS lisencing fees? Somoen wrote on another forum that by merging with PSG, HS will significantly reduce teh lisencing cost associated with PalmOS! Is this true?

----------------------------------------
"Computers are useless. They can only give you answers."

-Pablo Picasso.

RE: You Could See it Coming
blueBlade @ 6/4/2003 7:45:41 PM #
more like Palm Inc is loosing a good revenue stream to me.
RE: You Could See it Coming
DarthRepublican @ 6/4/2003 10:03:57 PM #
> What about HS's PalmOS lisencing fees? Somoen wrote on
> another forum that by merging with PSG, HS will
> significantly reduce teh lisencing cost associated with > PalmOS! Is this true?

But PalmSG is spinning off PalmSource, its OS unit. This would mean that merger or no merger the both PSG and HS would be paying PalmSource licensing fees for the PalmOS once the spin-off is complete.

RE: You Could See it Coming
blueBlade @ 6/4/2003 10:10:48 PM #
no it's not. Don't pull an Enron on us.

Before the merger there were 2 companies. After the merger and before the split there will only be ONE company, regardless if Palm Inc want you to believe they have two headquarters and two accounting.

If The people who makes the decission are still the same, and all the players are in one buildings. We are just talking about corporate law gimmick.

Not after the palmsource is doing IPO and having seperate boards will I accept all these talk about there are 2 companies.

RE: You Could See it Coming
mikecane @ 6/4/2003 11:39:31 PM #
And I hate hate hate to say this, but Blue is correct.

RE: You Could See it Coming
hotpaw4 @ 6/5/2003 12:13:35 AM #
someone wrote:
>After the merger and before the split there will only be ONE company

Read the press release again. The split happens before or at the same time as the merger. Thus there will be 2 companies both before (PalmCombo and Handspring), and after (PalmSpring and PalmSource).

RE: You Could See it Coming
mikecane @ 6/5/2003 12:19:17 AM #
Let's first see if it happens. The best-laid plans... this isn't such a great economy too, you know.

RE: You Could See it Coming
blueBlade @ 6/5/2003 12:43:45 AM #
I read the Press release, and I can't find any specific dates. You wouldn't think they are waffling over the split and waiting for a chance to make more buck in recovering market would you?

nah.. that couldn't be...

(so in the meantime, pardon me in saying there is only one company with bunch of subsidiaries)

Bad news!

djh @ 6/4/2003 11:22:12 AM #
One F****d company + one F****d company = one slightly larger F****d Company.

Both of these needed to merge with companies that had other more viable product lines. Apple and HS as once rumoured moght have worked.

Can't see Palm Springs getting anywhere. As suggested on another site, Sony will probably end up owning the whole pile of poo within a year.

Cheers!!

RE: Bad news!
Best of Bread @ 6/4/2003 11:33:37 AM #
Sony owning Palm Springs..

Only if the whole PDA market is looking for Gameboy toys to hook up to the desktop and Enterprise applications.

Sony = Toys/Recreation
Palm = Business Productivity

Pilot/Palm Pro/Palm VII/m505/Tungsten T

RE: Bad news!
HeavyUser @ 6/4/2003 11:34:39 AM #
troll alert!

RE: Bad news!
StudentDoc @ 6/4/2003 11:41:24 AM #
I don't know but I think its another dumb move. Not the first by Palm, Inc. Just when things have been looking better, the "management" team pulls another dumb stunt.

It looks to me that Palm is trying to save Handspring (and prevent them from failing outright--bad press for the whole Palm industry and their new spinoff) since Handspring has been failing for years. They have absolutely no product line now, just a rumored phone that will be outdated by the time it is released in October. I am not sure that is even worth 50 cents to Palm, much less the millions they will end up paying in stock.

I guess the boys that abandoned Palm to start Handspring still have some pull there. Good grief.

RE: Bad news!
Doo @ 6/4/2003 3:26:14 PM #
I get tired of hearing Handspring has been dead for "YEARS". They fell from grace when Sony entered the market with all the invoation and such. But that was just not that long ago. True they were/are in a bit of $$ trouble but this isn't charity.

RE: Bad news!
calamari @ 6/4/2003 4:45:31 PM #
my god, with the way people go on about how much palm is dying, you would expect that they would have been bankrupt years ago.

Quis custodiet ipsos custodes?
RE: Bad news!
rsc1000 @ 6/4/2003 10:45:40 PM #
>>I get tired of hearing Handspring has been dead for "YEARS". They fell from grace when Sony entered the market with all the invoation and such. But that was just not that long ago. True they were/are in a bit of $$ trouble but this isn't charity.

Exactly. Apparently, the solution to all of Palms woes is simple: just hire all of the genius arm-chair analysts on this website to run the company. Seriously, "handpring has been failing for 5 years" - i keep reading these over-the-top, exagerations on this website and i have to laugh my ass off. And as for Palm being this huge 'loser company' - I'd say that - a few mistakes aside - they are quite adept at doing what they do. Any other company making $$$ in this industry right now? Gee, HP and Dell are pretty stable - so we don't whine about there impending doom at the hands of bad PDA sales/profit. But of course, they actually lose $$$ on their PDA units, but they have tons of $$ from PC sales. Palm isnt making $$$ at the moment - with a drop of over 20% in PDA sales in the last year nobody is. But they have managed to tread water during the crappiest time for the industry and time will tell how they make it count when the market picks up. All of the nay sayers said Palm would be gone 2 yrs ago - after the intro of PPC. I'd say that hanging onto 40% of the market - and im just talking about PalmSG, not PalmSource - is a pretty good testament to a reasonably well managed company, especially considering who they are up against.

RE: Bad news!
TooMuch @ 6/4/2003 11:00:26 PM #
Thank God most of these comments are not the thoughts of those who are in really in charge. Can you imagine no PalmInfocenter or any other such source? There would be no need for such because...these "brains" would kill the PDA market completely:)

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