AOL, Nokia and Motorola to Spend $225 Million for Shares in 3Com Palm Unit
America Online Inc. and two of the world’s largest cellular telephone makers agreed to spend as much as $225 million for shares of 3Com Inc.’s Palm unit, putting more firepower behind the best-selling electronic organizer.
The small stakes will go to AOL, Nokia and Motorola as 3Com sells shares in Santa Clara, Calif.-based Palm to the public for the first time, 3Com said Monday in a filing with the Securities and Exchange Commission.
While the amount of money involved is relatively small, the investments are an endorsement of Palm’s strategy of licensing its operating system to other device makers while seeking more applications for its own Palm VII and other products.
For the two mobile phone giants, the move is another sign of the emerging high-stakes race to gain the upper hand--or at least a solid foothold--in the expanding market for wireless hand-held devices that can handle e-mail and other functions now common to desktop computers.
Software maker Microsoft Corp., which dominates the world of tethered computers, has awakened to the fact that there is a growing market for wireless phones and personal digital assistants, like the Palm, that do not use Microsoft software as their basic operating system.
Microsoft has acted to make up lost ground in the wireless market by forging a major partnership last week with mobile phone maker Ericsson. That deal is not an exclusive one, but it follows a string of other moves by the Redmond, Wash.-based company to bolster its position in hand-held computing.
Ultimately, the moves by Nokia, Motorola and Ericsson could lead to a fractious future if the phone companies begin to align themselves with competing strategies instead of working with a range of potential wireless devices and software.
AOL plans to offer services over Palm devices and the SEC filing said that Motorola has joined other phone makers in licensing Palm’s software, a prelude to making a competing phone or organizer. The move would mark the first time AOL services would be offered on a hand-held device.
“This will be very well-received” by investors, said analyst Patrick Houghton of Sutro & Co., who rates 3Com shares a “buy.”
After the IPO early next year, the three investing companies will hold as much as 4.5% of the company’s capital stock, the filing said.
3Com, the No. 2 computer-networking equipment maker, expects to spin off Palm six months later to 3Com shareholders.
Palm filed with the SEC to sell $100 million worth of common stock, though the filing gave no details about precisely how many shares the company hopes to sell or how much the IPO would raise.
Houghton valued Palm at about $10 billion--two-thirds of 3Com’s $15.5-billion market value. Palm accounted for $176.5 million, or 13%, of 3Com’s $1.39 billion in revenue in the quarter ended Aug. 27.
3Com shares rose $1.75 to $44.81 on Nasdaq. The shares have risen 64% since 3Com said on Sept. 13 that it planned to spin off Palm.
Underwriters for the stock sale will include Goldman, Sachs & Co., Morgan Stanley Dean Witter & Co., Merrill Lynch & Co. and Robertson Stephens. Palm said it will list on the Nasdaq National Market and hopes to trade under the ticker symbol “PALM.”
Bloomberg News was used in compiling this report.
