ZerO_CooL : Megadeal : Palm / Handspring
Wednesday June 4, 3:10 pm ET
By Tom Foremski in San Francisco
Palm is acquiring rival Handspring in a potential $169m stock deal that returns the developers of the popular Palm handheld computer to their origins.
For Donna Dubinsky and Jeff Hawkins, the prime movers behind both Palm and Handspring, the deal caps a more than 10-year rollercoaster ride to great riches followed by a swift decline as the markets for personal digital assistants (PDAs) collapsed.
Palm on Wednesday also approved the spin-off of its PalmSource software group, which will seek to license the Palm operating system to other companies.
Handspring shareholders will receive shares in Palm after the spin-off of the software group, which currently has no market valuation, and calls into question the actual value of the deal.
Shareholders in Handspring, founded by Ms Dubinsky and Mr Hawkins after they left 3Com, Palm's parent company, in July 1998, will receive 0.09 Palm shares, post spin-off, for each Handspring share, providing a 32.2 per cent ownership of the merged company, which will also be renamed.
Although PalmSource has no clear market valuation, software profit margins are typically in the 80 per cent range, far higher than 10 to 20 per cent margins in computer hardware. In March, PalmSource reported revenues of $26.3m in its fiscal third quarter compared with $198m for Palm's hardware group. Handspring is one of the largest licensees of Palm OS.
Palm expects the spin-off of PalmSource and the acquisition of Handspring to be completed in third quarter of this year.
Palm was up 19.75 per cent to $14.55 in late afternoon trading on Wednesday. Handspring rose 13.5 per cent to $1.26.
Handspring's value pales in comparison with its valuation at the time of its initial public offering in June 2000, which closed at $3.4bn on its first day. Palm itself has fallen from the $80bn valuation following its IPO from 3Com in 2000, to just more than $400m.