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Shareholders OK Palm spinoff, merger

The handheld maker spins off PalmSource and hopes its acquisition of Handspring will strengthen its grip on a slumping market.

Shareholders voted to approve Palm's acquisition of Handspring as well as the simultaneous spinoff of operating system subsidiary PalmSource, in a bid to strengthen the handheld maker's grip on a slumping market.

As expected, the vote took place during Palm's annual stockholder meeting Tuesday. The transactions are expected to close later in the day, and trading of the two public companies will begin Wednesday on the Nasdaq. The newly created PalmSource will trade under the symbol "PSRC." Palm, combined with Handspring, will be renamed PalmOne and will use the symbol "PLMO."

Palm, which owns about 86 percent of PalmSource, will distribute all its PalmSource shares to Palm stockholders, who will receive about 0.31 shares of PalmSource common stock for each share of Palm common stock they own.

Palm will issue about 13.9 million shares to Handspring stockholders, who will get 0.09 shares of Palm for each share of Handspring common stock they own.

The handheld market has been slumping over the last several quarters, but Palm has remained the market share leader in shipped devices and handheld operating systems. Analysts have attributed the handheld market decline to a lack of innovation and slower-than-expected growth of handheld use within big businesses.

By acquiring Handspring and splitting off the OS subsidiary, the handheld maker is getting into the promising market of devies that combine the features of cell phones and organizers. It also allows PalmSource greater freedom to push into the portable device market.

Shares of Palm were up 80 cents, or 3 percent, to $26.40 in midday trading on the Nasdaq.

"The major benefit of this (completion of the spinoff) is that we can focus 150 percent on the building of the OS," said David Nagel, chief executive of PalmSource. "The process has been distracting."

Among the devices PalmSource will target are smart phones, which will make up a significant fraction of the 450 million unit cell phone market, according to Nagel. PalmSource is working on new versions of the Palm OS that targets cell phones.

Devices that combine organizer functions with the ability to make phone calls are expected to further challenge personal digital assistants in the device market, with volumes expected to grow about 86 percent annually until 2007, according to research firm IDC.

The new hardware company, PalmOne, has 815 workers, while PalmSource has 311 employees.