Palm said Wednesday that it will buy rival Handspring for approximately $169 million in an effort to strengthen its grip on the market for handheld devices.

Palm, which also announced that it has finalized plans to spin off its PalmSource software division, will purchase Handspring in a stock deal.

The transaction will grant Handspring stockholders 0.09 of a share of Palm--and no shares of PalmSource--for each share of Handspring common stock. Based on Tuesday's closing price, that values each Handspring share at $1.09, slightly lower than Handspring's closing price of $1.11.

The deal is expected to close this fall, after the spinoff of PalmSource. Palm Solutions Group, the company's hardware arm, will then merge operations with Handspring, creating a new hardware company with a new name.