Article courtesy of Red Herring about PALM IPO:
Investors are in Palm's hand
By Lawrence Aragon, Senior Writer
Redherring.com, January 31, 2000
The long wait is over. Palm Computing, the company that made handhelds
cool, said Friday it plans to go public.
Palm, a subsidiary of 3Com (Nasdaq: COMS), filed a registration statement
with the Securities & Exchange Commission to sell about 26.5 million
shares at $16 a share. It expects to raise $423.2 million. With 570 million
shares outstanding after the offering, the newly named Palm (the
company is dropping the "Computing") will have a market cap of $9.1
billion.
Separately, the company plans to sell stock in private placements to
America Online (NYSE: AOL), Motorola (NYSE: MOT), and Nokia (NYSE:
NOK) to raise about $225 million.
The lead underwriter for the IPO is Goldman Sachs (NYSE: GS); the other
investment banks in the deal are Morgan Stanley Dean Witter (NYSE:
MWD), Merrill Lynch (NYSE: MER), and Robertson Stephens.
CASH IN PALM
The SEC filing gives the first glimpse of Palm's operations. It posted net
income of $29.6 million on sales of $563 million for its fiscal year ended
May 1999. Its profits increased seven-fold and its sales more than
doubled from the same period of the previous year.
The company is on pace to quickly top $1 billion in annual revenues. For
the six months ended November, its sales totaled $435 million, up 65
percent from the same period in 1998. Meanwhile, its net income soared
to $22.5 million for the six months ended November, up 39 percent from
the same period of the previous year.
Palm's gross margins are about 43 percent, a far cry from the paper-thin
margins of standard Internet plays.
Other items of note from the SEC filing: As of December 31, the company
sold more than 5.5 million Palm devices worldwide, and more than 33,000
third-party developers had registered to write applications to run on the
Palm platform.
After the IPO, 3Com will own 93.3 percent of Palm's stock. It plans to
"divest" itself of those shares by distributing them to 3Com shareholders
about six months after the offering.
THREE RICH AMIGOS
The three individuals who stand to make the most from the offering are
3Com CEO Eric Benhamou, who owns 1.79 million 3Com shares; 3Com
director and venture capitalist Jim Barksdale, who owns 120,000 shares;
and director and Chips & Technologies founder Gordon Campbell, who
owns about 56,000 shares.
Those gentlemen, along with 3Com, almost assuredly will walk away with
even more cash. The interest in the offering will be very high and will
probably result in the underwriters' increasing the initial offering price.
3Com apparently expects that to happen. It has struck an agreement
with Palm under which Palm will pay 3Com a dividend of at least $50
million if the total net proceeds of Palm's IPO and private placements
exceed $620 million. (Palm's gross proceeds are expected to be about
$648 million.) Additionally, 3Com may take a dividend of up to 50 percent
of the total net proceeds in excess of $620 million.
Palm, which gets 99 percent of its revenue from the sale of its devices,
plans to boost its sales by pushing for more sales into the enterprise
market, which it describes as "a significant opportunity." "With the recent
introduction of wireless-enabled devices, the development of enterprise
customer support programs, and the addition of a direct enterprise sales
force, we are focusing on increasing the adoption of Palm devices by
enterprise customers," the SEC filing states. It notes that Cedars-Sinai
Medical Center is deploying Palm VII devices to manage patient
information.
The company also hopes to leverage partnerships with enterprise
software vendors such as Oracle (Nasdaq: ORCL), Peoplesoft (Nasdaq:
PSFT), Remedy (Nasdaq: RMDY), and SAP (NYSE: SAP). Each of those
developers is working on applications that allow Palm devices to interact
with enterprise databases.
WIRELESS CONNECTION
Palm also plans to license its operating system (OS) to establish a
standard, "open operating system for information appliances." It will
license the Palm OS to handheld device makers such as Sony (NYSE: SNE),
as well as wireless phone maker Nokia and digital wireless
communications products maker Qualcomm (Nasdaq: QCOM).
That's not all. Palm plans to develop products and services that "leverage
wireless connectivity and the Internet." The Palm VII is the first step in
that process. The company says its Internet services strategy includes
expanding the geographic coverage of its Palm.net wireless access
service, developing hardware and software solutions to allow older Palm
products to access Palm.net, and enhancing the wireless functionality of
Palm.net to make it more attractive for enterprise and carrier applications.
Palm also hopes to expand its international sales by increasing the
number of localized versions of Palm devices and boosting distribution. For
the first six months of fiscal 2000, the company's international sales made
up 32 percent of its total revenues, up from just 25 percent in the same
period of the previous year. The SEC filing notes that the company has
launched localized versions of Palm devices in five languages. |
