Palm Agrees to Acquire
Handspring in Stock Deal
By PUI-WING TAM
Staff Reporter of THE WALL STREET JOURNAL
Palm Inc. agreed to buy struggling Handspring Inc. for $169 million in
stock, closing a chapter in the tale of the scrappy Silicon Valley
entrepreneurs who created the market for the now-ubiquitous hand-held
computer and were once the toast of the tech industry.
Palm, the Milpitas, Calif., maker of hand-held computers, said it is
offering 0.09 Palm shares for every share of Handspring. Based on
Palm's closing price of $12.15 on Tuesday, the deal values each
Handspring share at about $1.09 and the deal at $169 million.
The deal, which was only nailed down in early hours of Wednesday
morning, reflects the new reality of Silicon Valley economics. At its
late-2000 peak, Handspring's stock-market value was $9.2 billion. But
the tech downturn has pummeled the Mountain View, Calif., company's
revenues and forced Handspring to abandon its bread-and-butter line of
simple handheld organizers to make a bet on an unproven product that
combined a hand-held with a cellphone. Sales of the new device, dubbed
the Treo, were slow to take off, leaving Handspring bleeding cash and
vulnerable to bigger rivals with deeper pockets.
The deal also shows how Silicon Valley's pioneers often aren't the
ones that hold sway over their own innovations. The transaction brings
the founders and original executives of Palm back into the company's
fold. Donna Dubinsky, Jeff Hawkins and Ed Colligan created and built
Palm in 1992 -- starting the hand-held revolution -- but left in 1998
to launch Handspring. Ms. Dubinsky, Handspring's CEO, will now take a
Palm board seat, with Mr. Hawkins, the technical guru and inventor of
the original Palm Pilot, becoming Palm's chief technology officer. Mr.
Colligan, Handspring's president, will lead a Palm division.
Palm's move fills a growing hole in the product lineup at Palm, which
has also been severely weakened by the tech slump. According to IDC,
Palm was the world's top hand-held computer maker last year, with a
36% market share. But Palm has little presence in the growing market
for "smartphones," which combine a hand-held organizer with a
cellphone, and has few relationships with the telecom carriers that
are the main sellers of such devices. With Handspring, Palm will add
an established maker of smartphones that has ready-made relationships
with wireless carriers. Handspring was No. 3 in the smartphone arena
last year behind Nokia Corp. and Motorola Inc., with a 7% market
share.
The transaction also brings a crew of respected industry veterans to
Palm -- particularly Mr. Hawkins, who some view as the father of
hand-held computing -- back into its talent pool. Two members of
Handspring's board, venture capitalists John Doerr and Bruce Dunlevie,
are joining Palm's board. Todd Bradley, currently chief executive of
Palm's hardware division, will remain in charge of the new company.
"We're building one of the strongest pure-play mobile device companies
in the world," said Mr. Bradley, who said discussions with Handspring
had begun late last year but didn't heat up until the past few months.
The merged entity will have annual revenue of about $1 billion.
Ms. Dubinsky said she was "very pleased" with the deal. She said the
transaction creates a strong merged entity with better access to
retail channels and more assets to tackle the corporate market, where
both Handspring and Palm have so far had little success. The deal
"will help two companies arrive at a profitable structure sooner
together than on their own," Ms. Dubinsky said.
The merged Palm and Handspring will face big competitive challenges.
Sales of hand-held computers are forecast to be flat this year,
according to IDC. And while smartphone sales are expected to nearly
triple to more than 13 million units this year from around three
million units 2002, Palm's acquisition of Handspring means it will now
compete in a space that is dominated by heavyweight wireless companies
such as Nokia and Motorola, and where still-other heavies such as Sony
Corp. are moving in.
The acquisition is happening simultaneously with a spinoff of Palm's
software business, PalmSource Inc., which means that Handspring is, in
effect, being bought by Palm's hardware group.
Write to Pui-Wing Tam at pui-wing.tam@wsj.com
Updated June 4, 2003 5:08 p.m.
