The founders of personal digital assistant pioneer Palm Inc. have returned to the fold as the company announced plans to acquire Handspring Inc.
Jeff Hawkins and Donna Dubinsky founded Palm in 1992, but they left the company in 1997 to form rival Handspring. Now Hawkins and Dubinsky will return to the company they first founded, before it was acquired by U.S. Robotics and then later spun off as a public company. Hawkins will become the new company’s chief technology officer, while Dubinsky will sit on the new company’s board. The new company will be headed by Palm’s Todd Bradley and will be broken into two businesses-handheld computing solutions and smart-phone solutions, which will be led by Ed Colligan, Handspring’s current president and chief operating officer.
The acquisition also comprises several interesting financial and strategic elements.
First, the transaction will combine Palm’s all-stock acquisition of Handspring with the spinoff of Palm’s operating system business. The $169 million acquisition and the spinoff are expected to be completed in the fall. Under the deal, all of the shares of PalmSource owned by Palm will be distributed to Palm shareholders. Then, following the spinoff of Palm’s operating system business, Palm will issue approximately 13.9 million shares to Handspring shareholders in exchange for their Handspring shares. The companies said they expect to cut about 125 combined employees and expect improved operating efficiencies of about $25 million. The new company’s name has not yet been decided.
Investors seemed cheered by the news, sending Palm’s stock up almost 16 percent to about $14 per share. Handspring’s stock was up almost 14 percent to about $1.26 per share.
Aside from the details of the transaction, the move also creates an interesting new player in the mobile-phone and PDA space. Handspring has worked to transition its business from PDAs to fully wireless smart phones. Palm, however, has been more hesitant in the wireless game and has only recently introduced a mobile-phone device. Palm will gain the wireless technologies developed by Handspring, as well as its carrier deals with Orange and Sprint PCS.
Further, the newly combined company will need to license the Palm operating system from Palm’s OS business after it is spun off from Palm. Interestingly, Palm’s acquisition of Handspring will combine the top two Palm OS licensees into one company, possibly affecting the Palm operating system business after it is spun off.
Although both Palm and Handspring hyped the acquisition as a major move for the companies, both Palm and Handspring are facing sluggish sales in a crowded market for handheld devices.
