Shares of 3Com jumped $4.81, or almost 7 percent, to $74.81 by market close on the Nasdaq. Earlier, shares hit a new high of $75.88.
3Com has grappled with a sinking stock price in light of increased competition in the networking market. A series of strategic shifts have also raised questions in the analyst community about the company's staying power. Despite the recent troubles, 3Com is now edging closer to a four-year high of $81.38, last hit December 1996.
In December, Palm filed plans to raise upward of $368 million in an IPO. When 3Com first announced its plans before filing papers with the Securities and Exchange Commission, its shares were mired in the $27 range. Since then, the stock has jumped 178 percent.
Sutro & Co. analyst Patrick Houghton said 3Com's stock is rising because 3Com shareholders welcome the opportunity to own shares in both 3Com and Palm.
3Com will initially retain a 93 percent stake in the company, though it plans to later distribute Palm shares to 3Com investors.
"A lot of investors are probably not buying it on the strength of the existing networking business. They're buying it for the Palm business," Houghton said. "They're probably not going to be on the allocation list for that small amount of shares being distributed now."
Palm expects to begin trading in early March under the ticker "PALM."
When Palm spins off from 3Com, the company will have an initial market value of $9.1 billion, based on the high-end of its $14 to $16 price range and 570 million shares that will be outstanding. 3Com has a market capitalization of $25.8 billion.
3Com plans to transfer its remaining shares of Palm within six months of the public offering. Until then, the networking firm's market value will be closely tied to Palm, Houghton said.
"For shareholders who bought the stock at $20, they're taking a victory lap," he added.