3Com splits, Palm Computing goes public

3Com splits, Palm Computing goes public

3Com yesterday announced plans to split the company in two, taking its Palm Computing subsidiary public.

3Com expects to launch the initial public offering (IPO) of Palm Computing over the next three to four months, most likely in January 2000, chief executive officer Eric Benhamou said yesterday in a conference call.

Benhamou expects the move to allow each company to separately focus on growth opportunities in their core markets, and create more value for shareholders, customers and employees.

3Com's Palm Computing subsidiary produces the popular handheld devices Palm III, Palm V and Palm VII. The other part of 3Com's business is focused on networking products such as routers, switches and modems.

Up to 20 per cent of Palm Computing's shares will be offered to the public, with the remaining 80 per cent originally held by 3Com, the company said. The 3Com shares will later be spun off to 3Com shareholders, in what the company expects to be a tax-free transaction, according to Benhamou.

3Com also will license Palm's technology and will continue to support the company's growth. 3Com's own employees will be using Palm Computing devices to access corporate information, Benhamou said.

James Barksdale, the former Netscape Communications chief executive officer who is now a managing partner of the Barksdale Group, and Gordon Cambell, president and chairman of Techfarm, will also join the new Palm company's board of directors. Other management decisions will be announced before a filing is made with the US Securities and Exchange Commission.

Palm's current management team is still in place, and a search is on for a new chief executive officer, Benhamou confirmed. 3Com and Palm Computing will have separate boards of directors, chief executive officers and chief financial officers. The sales forces which are currently in place for both businesses will remain essentially unchanged, company officials said.

3Com's networking business will also benefit from the move, Benhamou said, having "full freedom of association and alliances. The natural partners for the networking business may not be the same as those for the handheld computing business, and vice versa." 3Com's networking business will concentrate on expanding its networking systems and connectivity businesses. The goal is to create networks, and Internet-related products and services that let people access and use information in new and innovative ways, the company said in a statement.

The move also puts to rest fears by some that 3Com was neglecting its traditional networking equipment business for its more glamorous handheld devices business, according to Benhamou. "By definition, 3Com will renew its commitments to the networking market," he said.

Palm Computing will concentrate its efforts on licensing handheld operating systems, making products and services for enterprise computing, wireline and wireless Internet services, portal sites and Palm-branded devices, 3Com said. It also expects to strike a number of new alliances and partnerships.

Company officials said Palm expects more of its revenue in the future to come from licensing the Palm operating system to market players such as games manufacturers or mobile phone companies, with the proportion of direct revenues from sales of handheld devices diminishing.

Another big area will be integrating corporate applications for remote use via handheld devices. Already, for example, Oracle is using Palm handhelds as a platform for remote access to its hosted database applications. 3Com also sees great promise in remote access to healthcare applications such as patient records.

Asked if spinning off Palm Computing might make 3Com an even more attractive takeover candidate, Benhamou said there would be few tax benefits to such a transaction, but declined to comment further. 3Com has repeatedly been the source of takeover rumours from larger companies such as Cisco.

While 3Com's Palm Computing business has shown vigorous growth, its traditional business for networking products has seen less spectacular results. In its 1999 fiscal year, which ended in May, 3Com's sales totalled $US5.8 billion. In yesterday's release, 3Com said its Palm business represented about 10 per cent of total 1999 sales.

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