Applause for Handspring's Planned Offering

Updated from 2:21 p.m. EST

Handspring (HAND Quote) is saving itself.

The PDA maker was up 37% to $5.46 in Monday morning trading, while competitor Palm (PALM Quote) climbed almost 15% to $3.92 in sympathy, on news that Handspring plans to raise $60 million, however possible, in this market. What matters most, given the warm welcome the announcement got from investors, is what Handspring can sell and at what prices.

Handspring filed a shelf registration stating its intentions to raise up to $60 million, using "secured or unsecured debt securities, preferred stock, common stock and warrants." Handspring plans to offer any combination of the above at any time it deems appropriate.

Fundraising often stirs up questions among investors when it comes to the vehicle of the sale -- for example, if it's a debt offering of a heavily burdened company -- or the price, if it deals with a stock sale when the price of a stock has come down substantially. Additionally, stock offerings can dilute shareholders' stock, another pet peeve among investors. Not so with Handspring, despite its stock's 52-week high of $72 a share.

Supporters of Handspring are apparently not as worried about those complexities as much as they are about the company's simple survival. If the handheld creator is able to raise the $60 million, it would double its current store of cash and equivalents, which totaled $60.7 million as of Sept. 29, 2001, excluding $17 million in short-term investments. Handspring burned $57 million in the September quarter, due to increases in items such as accounts receivable and prepaid inventory. Handspring offset that drain on cash with $29.7 million in investing activities.

Palm and Handspring merger and acquisition speculation also was kicked into high gear Monday as well, by a Wall Street Journal report. But it is widely held that the duo's biggest challenges are financial instability and impending competition from mobile phone makers. Handset companies are racing to incorporate PDA functions into their phones, which would bring a PDA experience to the comparatively enormous mobile-phone market without the Palm or Handspring mark.

USB Bancorp Piper Jaffray's Bill Crawford argues that a merger between Palm and Handspring would make little sense, and would draw "parallels between the HP and Compaq deal, where you take two companies that are struggling and put them together. While you reduce competition and that would be positive, it doesn't make the combined entity a healthy one."

Handspring is looking at a spring launch of a breakthrough phone and PDA combination device, the Treo, that will allow users to access email, make calls on a GSM network and manage all their calendaring and contacts on one handset. Handspring's stock is up 128% since the Treo's Oct. 15 unveiling, as a market desperate for a major innovation from the PDA makers got proof that new wirelessly enabled devices are coming soon. "If they can raise $60 million, it can give them what they need to get to profitability," says CIBC World Markets' Tom Sepenzis. "They could be profitable in 2002 if all goes well with the new phone, selling them into the carriers, it could mean a turnaround."

Potentially, the move also can send a signal to outside buyers that Handspring is open to acquisition offers, but that is something that has been widely discussed about Handspring for months. For now, the company is focused on getting through the down market with enough money to keep turning heads with its products. We'll see how much Handspring's promise brings is worth monetarily to future investors.