Palm Announces Acquisition of Handspring &
Board Approves PalmSource Spin-off
MILPITAS, Calif. and MOUNTAIN VIEW, Calif., June 4 2003. The
boards of directors of Palm, Inc. and Handspring, Inc., a maker
of Palm OS smartphones, 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.
"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."
Palm, Inc. consists of two businesses -- PalmSource, a subsidiary
responsible for developing and licensing the Palm operating system,
and the Palm Solutions Group, a business unit responsible for
designing, making and marketing the world's leading handheld devices.
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
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.
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
-- 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.
"The vision and leadership that Jeff and Ed have brought
to the industry will be tremendous assets to the Palm Solutions
management team. Together, we'll advance the industry in ways
never before possible," Bradley said.
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
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."
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
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
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. The merger with Handspring will
be accounted for under the purchase method of accounting.
Morgan Stanley & Co. Incorporated served as financial advisor
to Palm and also provided a fairness opinion. Wilson Sonsini Goodrich
& Rosati, Professional Corporation, served as Palm's legal
Credit Suisse First Boston LLP served as financial advisor to
Handspring and also provided a fairness opinion. Fenwick &
West, LLP, acted as legal counsel to Handspring.
Palm, Inc. and Handspring, Inc. Historical
1992 - Jeff Hawkins and Donna Dubinsky found Palm, Inc.
1995 - U.S. Robotics purchases Palm, Inc.
1996 - Palm introduces the PalmPilot 1000 and 5000 organizers.
1997 - 3Com purchases U.S. Robotics
1998 - Hawkins, Dubinsky and Colligan leave Palm to create Handspring
2000 - Palm executes an Initial Public Offering, separating
2001 - Palm begins building separate businesses
-- Todd Bradley named Palm Solutions executive vice president
and chief operating officer (June 1)
-- Palm announces plans to create OS subsidiary (July 27)
-- Palm OS subsidiary acquires assets and talent from Be, Inc.
-- David Nagel is named Palm OS subsidiary president and chief
executive officer (Aug. 27)
2002 - Palm further builds on two businesses
-- OS subsidiary creation completed (Jan. 1)
-- Bradley promoted to president and chief operating officer of
Palm Solutions (May 2)
-- OS subsidiary named PalmSource
-- PalmSource names founding board of directors (June 24)
-- Bradley named Palm Solutions chief executive officer (June
-- Palm Solutions and PalmSource move to separate campuses (August)
-- Sony invests $20 million in PalmSource, marking first outside
investment (Oct. 8)
-- PalmSource adds four new licensees in year
-- IRS approves the spin-off as tax-free for U.S. citizens' federal
income-tax purposes (December)
2003 - Palm announces plans to acquire Handspring