Shareholders Applaud Two Palms

Palm is dead. Long live Palm.

The handheld computer maker Tuesday said its shareholders have approved a three-part proposal that lets Palm Inc. acquire rival Handspring and then split into two companies palmOne (hardware) and PalmSource (software). The company said stockholders of both companies approved the transaction worth an estimated $169 million in stock at Palm’s annual stockholders meeting.

Under the terms of the deal, Palm will distribute all the shares of PalmSource it owns (approximately 86 percent of the total) to Palm stockholders of record as of the close of business Tuesday. Those Palm stockholders will receive approximately 0.31 shares of PalmSource common stock for each share of Palm common stock they own.

Handspring’s acquisition is being completed as a merger with Palm issuing approximately 13.9 million shares to Handspring stockholders. In turn, Handspring’s stockholders will receive 0.09 Palm shares for each share of Handspring common stock owned.

Also as part of the deal, PalmSource stock will begin trading on the NASDAQ stock market Wednesday under the ticker symbol: PSRC. In addition, the PALM and HAND ticker symbols will cease to trade. palmOne’s stock will trade on the NASDAQ stock market under the ticker symbol: PLMO.

“Today’s stockholder vote approving the spin out brings enormous promise for the mobile device and smartphone markets, which will continue growing in quality and excellence as PalmSource and palmOne sharpen focus in their respective businesses,” chairman of PalmSource and palmOne, Eric Benhamou said in a statement.

Benhamou will stay on as chairman of palmOne and flip the CEO office keys to Todd Bradley. Handspring luminaries Donna Dubinsky and Jeff Hawkins are also on the palmOne team. Hawkins would become chief technology officer for the merged company. Dubinsky’s role will be to retain a seat on the merged company’s board of directors. The company’s product line will bear one of the company’s three sub brands: Zire, aimed at consumers and multimedia enthusiasts; Tungsten, targeting mobile professionals and business; and Treo, the sub brand for smartphones, which are marketed to both individuals and businesses.

palmOne, which moved its headquarters to Milpitas, Calif. earlier this year employs 815 people. In addition to Bradley and Hawkins, the new company’s executive team includes:

  • Judy Bruner, senior vice president and chief financial officer;
  • Ed Colligan, senior vice president and general manager of the
    Wireless Business Unit, which includes the Treo family;

  • Ken Wirt, senior vice president and general manager of the Handheld
    Business Unit, which includes the Zire and Tungsten products;

  • Angel Mendez, senior vice president of Global Operations;
  • Mary Doyle, senior vice president and general counsel; and
  • Patricia Tomlinson, senior vice president and chief human resources officer.

The palmOne board of directors consists of seven members from the former Palm, Inc. board, plus three members of the former Handspring board of directors: John Doerr, Bruce Dunlevie and Donna Dubinsky.

The new company is a homecoming for Hawkins who founded Palm Inc. in 1992. The company was sold to U.S. Robotics in 1995, which was then bought by 3Com in 1997. In 1998, Hawkins, Dubinsky and Colligan left Palm to create Handspring. Then two years later, Palm separated from 3Com and issued an Initial Public Offering.

PalmSource CEO David Nagel, meantime will rule over the Sunnyvale, Calif.-based company with 311 people on staff. The company continues to make headway including collaborating with IBM to advance the development of next-generation Web Services applications for Palm Powered devices. The software maker said it has inked a deal to make Silicon Valley Bank (SVB) its primary banking partner, which includes an introductory $15 million line of credit that PalmSource said will be earmarked for working capital purposes.

The Palm OS platform has attracted a large following, with over 30 million Palm Powered devices sold to date and software developers who have created over 19,000 Palm OS software titles, the largest collection of software for any mobile operating system.

In addition to Nagel, the new company’s executive team includes:

  • Larry Slotnick, chief products officer;
  • David Limp, senior vice president, corporate and business development;
  • Lamar Potts, vice president, worldwide licensing;
  • Gabi Schindler, senior vice president, marketing;
  • Al Wood, senior vice president and chief financial officer; and
  • Doreen Yochum, chief administrative officer.

“PalmSource’s competitive position extends well beyond the strength of its brand. The company benefits from a loyal base of customers, an established Palm OS platform across multiple devices and a large, diverse community of third-party developers,” Benhamou said.

The Handspring merger and PalmSource split has marked a definite shift in the PDA-wireless convergence space. But analysts say it also shows that the two companies needed each other’s know-how to stay active in the ever-changing mobile market.

Back in June when the Handspring deal was announced, Martin Reynolds, a technology analyst at Gartner told he didn’t think either company could be considered really strong on their own. Both needed something to get them in a better position going forward.

“One of the challenges Palm and Handspring had operating separately is that they were competing against each other and not building market share,” Reynolds said. “Now, they will be able to compete against Sony, which has been doing a great job with consumer lines. Plus, there is very little overlap between [Palm and Handspring’s] product lines.”

And adding the Treo line to its repertoire means Palm is now thrust into direct competition with smartphone makers Nokia , Motorola , Samsung, and Sony Ericsson.

“The important thing is that Palm has dominated the unwired handheld industry. It has been Palm’s for the taking. This new space — convergence space — is a whole new animal and this is not an industry that Palm will not come in and dominate because it has no heritage,” IDC senior analyst Alex Slawsby told back in June.

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