3Com Corp.(Nasdaq: COMS) advanced 5 percent, or 2 3/8 to 48 15/16 on high volume Monday after it announced the terms of Palm Inc.'s IPO, and received an upgrade from SG Cowen.
Palm, (Proposed ticker: PALM) maker of the Palm Pilot hand-held computer devices and a wholly-owned unit of 3Com said Friday it would sell 23 million shares in a projected range of $14 to $16 a share.
SG Cowen raised its rating to "buy" from "neutral" and set a 12-month target of $60 a share on the stock. Shares in the company have been recovering since it fell in December on its revenue outlook for the third quarter.
Analyst Chris Stix based the upgrade on the likelihood that Palm will have a post-pricing valuation of $36 to $42 a share. Stix also said 3Com may have difficulty facing the industry leaders' growth rates because most of its revenue is generated by commodity products such as modems and network interface cards.
3Com's emerging products, such as personal Internet devices, high-speed Internet access, voice-over-Internet protocol, wireless switching and home networking will help it achieve positive growth in fiscal 2001 excluding the Palm division, Stix stated.
Palm said in its SEC filing it will net $320.7 million from its IPO and will net another $225 million from private placements by America Online Inc. (NYSE: AOL), Motorola Inc. (NYSE: MOT) and Nokia Corp. (NYSE: NOK).
After the offering, there will be about 570 million shares outstanding, putting Palm's initial market capitalization at about $8.55 billion based on a $15 per share initial price. Of that, 530 million shares will be held by 3Com, the filing said. The company plans to divest of its holdings within six months by distributing the shares to 3Com shareholders.
Palm said it would use proceeds from the offering to pay a dividend of at least $50 million to 3Com, repay debt to 3Com, boost spending to support growth in operations, infrastructure, and hardware and software. If net proceeds exceed $620 million, 3Com has the right to receive an extra 50 percent of the aggregate net proceeds in excess of the $620 million, the company said in its SEC filing.
The underwriters, led by Goldman, Sachs & Co., have been granted the option to purchase an extra 3.45 million shares in the event of heavy demand.