Pricier than Park Place

September 1, 2003

It was right around this time last year when Inktomi — once a high-flying Internet search engine whose stock traded over $200 a share — was forced into a real estate squeeze play. During the Internet boom, Inktomi inked a synthetic lease deal with Deutsche Bank that enabled the company to keep the cost of its 261,000 square-foot Foster City campus off of its balance sheet. Inktomi was forced to come up with $114 million for the buildings only to sell them three months later for around $40 million. (For more on synthetic leases, see Chapter 8). Tapped out, Inktomi was acquired by Yahoo! earlier this year. A short drive down the 101, Handspring faced a similar squeeze according to the 10-K it filed late Friday. On the hook for about $350 million for two buildings in Sunnyvale and hemorraghing cash, Handspring was forced to restructure the deals, giving the landlord $15 million in cash, and agreeing to another $40.9 million in restricted cash and warrants to purchase 10 million shares of Handspring stock. The deal was supposed to give Handspring enough breathing room until the economy recovered, but even with the restructuring, Handspring had to turn to Palm in a merger deal announced last June. Palm, which also filed its 10-K on Friday has its own real estate woes. The company paid over $200 million in late 2001 for 39 acres in San Jose that it once planned to build on. So far, Palm has written off $160 million of that cost and now says the land is worth around $60 million.

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