Shares of

PalmSource

( PSRC) got a shot in the arm on Tuesday when former corporate sister

PalmOne

(PLMO)

renewed a licensing agreement with the company, fueling speculation the two companies would ultimately merge.

Under the deal, which runs through 2009, PalmOne will pay a minimum royalty of $148.5 million to PalmSource. The deal extends a previous agreement that was set to expire in November 2006.

In a separate agreement, palmOne is buying from PalmSource its rights to the Palm brand for $30 million. After that deal, palmOne will change its name back to Palm later this year.

In the wake of the announcements, shares of PalmSource were recently up $1.28, or 14.4%, to $10.17.

PalmOne shares also seemed to get a boost from the deals, rising $1.39, or 5.1%, to $28.65.

Over the weekend, PalmSource CEO David Nagel resigned and was replaced on an interim basis by Patrick McVeigh, the company's former head of worldwide licensing. But Nagel's resignation was only the latest leadership change for the company. In the past year, PalmSource has replaced its CFO and its chairman and named two new board members. McVeigh himself just joined the company in February.

Citing the management turnover, Fulcrum Global Partners analyst Jamie Friedman said that PalmSource could be an acquisition target. And PalmOne could be the most likely buyer. Subtracting the cash the company has on hand, PalmSource has an enterprise value of somewhere around $75 million, Friedman estimated. That's a whole lot less than the nearly $150 million that PalmOne has just agreed to pay PalmSource, he noted.

"You don't have to be a math major to figure this out," said Friedman, who doesn't have a position in PalmSource and whose firm doesn't do investment banking. "It's cheaper to marry than to date."

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But these agreements also come as PalmSource has struggled to find customers for its Palm operating system. The Palm OS has steadily lost market share in recent years to

Microsoft's

(MSFT) - Get Report

rival Windows Mobile platform. That trend was furthered in the last year as

Sony

(SNE) - Get Report

, PalmSource's second-biggest customer, stopped selling its line of Palm OS-based handheld computers in North America.

The loss of Sony has made PalmSource ever more reliant on its former sibling. In the first nine months of PalmSource's current fiscal year, royalties from PalmOne accounted for 64% of its revenue, up from 52% in the same period a year earlier.

But the stability of that relationship has come under question in recent months. Many analysts have predicted that PalmOne, in response to Microsoft's share gains and the demands of enterprise clients, will soon introduce a Windows Mobile version of its flagship Treo smartphone. If it were to happen, it would mark the first time that a PalmOne had offered a device that wasn't running the Palm OS.

Indeed, the purchase of the Palm name by PalmOne indicates that PalmOne will imminently release a device not based on the Palm OS, said Pablo Perez-Fernandez, an analyst with Stanford Group, which has not done any investment banking business for either palmOne or PalmSource in the last year. As part of the agreement palmOne and PalmSource reached when they became separate companies, PalmOne agreed to use the Palm brand only on devices that use the Palm OS, Perez-Fernandez noted. Purchasing the brand would allow the company to offer a "Palm-powered" phone or handheld that runs on Windows Mobile.

"This confirms our belief that PLMO will release a non-PalmOS device in the near term," Perez-Fernandez wrote.

As part of the brand purchase agreement, PalmSource has agreed to change its name and identity, though not necessarily immediately. PalmSource will retain its rights to its own name and to the Palm brand for the next four years. PalmOne will pay the $30 million over a period of three and a half years. PalmOne is buying PalmSource's 55% stake in that holding company.

Both PalmSource and PalmOne were formerly part of Palm. palmOne spun off PalmSource and changed its name as part of its acquisition of Treo developer Handspring in 2003.

The announcements come amid a Palm OS developers' convention that runs from Tuesday to Thursday in San Jose, Calif.