Additionally, Palm was feeling competitive pressure from a number of computer hardware manufacturers creating affordable, full-functioning wireless computing and communications devices.

Palm said the merger is expected drive cost savings of about $25 million annually, and would result in the layoffs of about 125 people due to overlapping operations.

Employees of Handspring are expected to move to Palm Solutions headquarters in Milpitas, Calif., the company said.

Under the terms of the deal, Handspring shareholders will receive 0.09 a share of Palm for each of its shares, and no shares in the PalmSource spin-off. Handspring shares closed yesterday at $1.11, but the transaction will value them at $1.09

The deal could close as soon as this fall, following the PalmSource spin-off transaction, whose timing could be impacted by market conditions.