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3Com soars ahead of the Palm IPO

Investors can't buy the initial public offering of Palm Inc. yet, but they sure are buying 3Com.

Shares of 3Com soared 15 3/16 to 113 3/16 Wednesday on the eve of the Palm (Proposed ticker: PALM) spin-off. After the IPO, 3Com will own about 93 percent of Palm. 3Com plans to distribute its Palm shares to 3Com shareholders within six months.

3Com has been on a tear in recent weeks despite a lackluster second quarter. 3Com shares closed 1999 at 47. You could call the run-up in 2000 the Palm premium as investors use 3Com as a proxy for shares of Palm.

"Palm has been one of the most widely anticipated IPOs since it first came into the system," said David Menlow, analyst with IPOfinancial.com.

The buzz around the Palm is deafening. The maker of the Palm Pilot hand-held computer devices said on Monday it raised the projected price range for its IPO to $30 to $32 per share from $14 to $16 a share

Palm plans to offer 23 million shares . Goldman Sachs is the lead underwriter with Morgan Stanley, Merrill Lynch and Robertson Stephens assisting.

The company boasts a whopping market share of more than 60 percent and has sold over 5.5 million Palm devices worldwide.

For the six months ending Nov. 26, the company reported a profit of $22.5 million on sales of $435 million. For the year ending May 28, Palm reported a profit of $29.6 million on sales of $563.5 million.

Palm said it primarily competes with Casio, Compaq, Hewlett-Packard, Psion, Sharp and Palm platform licensees such as TRG and Handspring. On the operating system side of the business, Palm competes with Microsoft Corp.'s (Nasdaq: MSFT) CE software.