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Palm Inc.’s newly announced alliance with Microsoft Corp. is unlikely to derail the pending $324.3 million acquisition of mobile software maker PalmSource Inc. by Access Co. Ltd., the companies and observers said. Palm’s decision to base its popular Treo “smartphone” on Microsoft’s Windows Mobile operating platform had prompted speculation that the pact could weaken the commitment by Access, a Tokyo-based wireless software maker, to complete its deal for PalmSource, which also makes operating system software for mobile devices. Palm, which spun off PalmSource in 2003, is by far PalmSource’s largest customer, accounting for 65 percent of its revenues. But Access expected Palm to form a partnership with Redmond, Wash.-based Microsoft, said Manuel Morales, a spokesman for Access, whose $18.50 per share offer for PalmSource amounted to an 83 percent premium for the company. PalmSource’s primary value to Access is its expertise with Linux, the open-source programming language that is growing fast in Asia and Europe, he added. “We want to put together a comprehensive solution in mobile,” Morales said. “The lack of a unified, comprehensive integrated solution has perhaps been a negative in the Linux market.” PalmSource earlier this year bought China MobileSoft Technology (Nanjing) Co. Ltd., a supplier of Linux-based mobile phone software, for $16 million in stock. In July it signed South Korean giant LG Electronics as a licensee. Still, Palm’s deal with Microsoft may signal the beginning of the end for PalmSource. Although a PalmSource spokeswoman pointed out that Palm has renewed its operating license through 2009, others doubted whether Palm would continue using its former unit’s operating software through that date. “It is going to depend upon the extent to which the Microsoft version of the phone takes away from the Palm version,” said Charles Wolf, a Needham & Co. analyst. Palm was widely believed to have been among the bidders for PalmSource when the software company announced its deal with Access. That’s because Palm is contractually required to pay PalmSource a minimum of roughly $140 million over four years, the analyst said. In late-day trading, PalmSource shares were down 3 cents at $17.87, still well above the $10.09 value of the stock stood when its acquisition was announced on Sept. 8. PalmSource has not yet scheduled a shareholder vote on the deal, but still expects it to close before the end of 2005, O’Connell said. Jefferies Broadview, a division of Jefferies & Co., was financial adviser to PalmSource in the deal with Access, while Credit Suisse First Boston advised Access. Copyright �2005 TDD, LLC. All rights reserved.

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