General Magic Ventures into the Public

Following much speculation and anticipation, General Magic took the expected step of filing plans with the U.S. Securities and Exchange Commission on December 7, 1994 for a public offering of its shares. The initial offering of four million shares at $13 will be underwritten by the investment firms of Goldman, Sachs & Co., Alex Brown & Sons, and Smith Barney, Inc.

A Bit of Background

Since its inception in May, 1990, General Magic has developed the very innovative Magic Cap operating system and Telescript communication technology. Magic Cap is a highly-intuitive, graphical operating environment that also serves as an object-oriented software platform for communicating applications.

Telescript, on the other hand, is a language for describing communication. Telescript creates a network platform through which intelligent, mobile software agents can perform useful operations. These operations encompass a broad scope of tasks ranging from delivering smart electronic mail to completing complex financial transactions.

Over the years, General Magic has attracted an impressive set of equity and technology partners collectively known as the General Magic Alliance. At present, these partners include: Apple Computer, AT&T, Cable & Wireless, France Telecom, Fujitsu, Matsushita, Mitsubishi, Motorola, Northern Telecom, NTT, OKI, Philips, Sanyo, Sony, and Toshiba.

The Numbers

Following the offering to the public, General Magic calculates that there will be 22,439,037 shares outstanding, valuing the company at approximately $291.7 million at the $13 offering price. The company reported $14.2 million in net loss for the nine month period ending on Sept. 30, 1994, and also reported having $86.2 million in cash and equivalents on Sept. 30, 1994.

General Magic stated in the filing that it “does not expect to generate significant revenues in 1994 or 1995 and expects to continue to incur substantial losses at least through the year ending December 31, 1996.” However, the company reports receiving $2.5 million in licensing revenue for the nine month period.

The Risks

As required, General Magic outlined some of the risks it foresees. These include a number of conventional concerns related to profitability, technical difficulty, and management changes. However, the filing also articulates some of the concerns faced by the industry as a whole, as seen through General Magic’s eyes.

For example, the company relates its concern about the uncertainty of the market for personal intelligent communicators and services available in the electronic marketplace. General Magic also recognizes the importance of having Magic Cap and Telescript technology gain acceptance on the desktop, particularly on Windows-based computers. It’s clear that these machines will continue to dominate consumer and business computer purchases in the near term.

General Magic is well aware of the competition it faces, ranging from well-funded industry friends and foes, to de facto standards that seem to magically appear on the Internet from time to time. The company also expresses concern over reducing the amount of handholding currently required for licensees and developers to bring Magic-based products to market.

The Big Winners

As detailed in the filing Marc Porat, General Magic CEO and co-founder, will retain a 9.6% stake in the company with 2,154,350 shares following the offering. Co-founders Andy Hertzfeld and Bill Atkinson and their families will retain 7.8% and 7.4% of the outstanding shares giving them 1,754,350 and 1,658,752 shares respectively.

The filing also lists Apple Computer as the largest shareholder with 12% stake after the offering. Early investors AT&T, Motorola, and Sony will each hold 7.4% of the company with 1,654,909 shares.

General Magic
420 N. Mary Avenue
Sunnyvale, CA 94086
(408) 774-4000