Handspring's creators are to return to the fold as Palm announces its plans to buy the rival company set up by its ex-founders. It also plans to spin off its software division, PalmSource.

Once the spin-off of PalmSource is complete Handspring and Palm will merge into a single company, no doubt in the hopes that two handheld firms will fare better than one. The new company, which is due to be created this autumn, will trade under a different name, which has yet to be announced.

The company will be headed by current Palm boss Todd Bradley, but head honchos from Handspring will also take key positions. Jeff Hawkings, who was one of the Palm founders who defected to set up Handspring, will become the new company's chief technology officer, while Ed Colligan, another ex-Palm Handspring founder will look after the smartphone side of things.

This latter business is sure to get a boost from the acquisition of Handspring, which is a leading maker of smartphones in the shape of its Treo range, and recently sighed an agreement with Orange to develop these devices. Palm on the other hand has no presence in the smartphone market.

This move represents Palm's continuing struggle in an arena flooded with cheaper Pocket PC devices such as Dell's Axim. The company needs something to boost its flagging sales following its losses reported in March and the job cuts it made in February.

Handspring shareholders will receive 0.09 Palm shares for each share of Handspring common stock owned. The value of the shares will depend on the Palm share price after the spin-off of PalmSource.