The deal, announced Wednesday morning, comes as Palm faces competition from a growing number of handheld device makers, and as Palm prepares to spin out its wireless software unit, PalmSource. It also provides an exit strategy for Handspring, which has been struggling with a depressed share price, a possible delisting from the Nasdaq, sluggish sales and increasing competition from a new generation of progressive handheld devices coming on the market.
Under the terms of the deal, Handspring shareholders will receive 0.09 a share of Palm for each of its shares, and no shares in the PalmSource spin-off. Handspring shares closed yesterday at $1.11, but the transaction will value them at $1.09.
By separating the hardware and software division, Palm Solutions Group, the company's hardware unit will consolidate its operations with Handspring.
Handspring's market capitalization has fallen in recent weeks and its trading price has fallen below $1, making it increasingly ripe for a possible acquisition.
For its part, Palm plans to add Handspring's Treo hybrid wireless phone/PDA to its existing Palm line of PDA products. Although Palm is still considered the leader of the PDA sector, the market is slumping as shipments have fallen by more than a fifth in the first quarter of 2003.
Additionally, Palm was feeling competitive pressure from a number of computer hardware manufacturers creating affordable, full-functioning wireless computing and communications devices.