EMC: Virtualization Software Unit Files To Go Public

VMware, a unit of EMC (EMC), late Wednesday filed with the SEC to sell about 10% of its Class A shares in an IPO. The underwriting syndicate for the deal includes Citi, J.P. Morgan, Lehman, Credit Suisse, Merrill Lynch and Deutsche Bank.

EMC will continue to own 100% of VMware’s super-voting Class B shares.

The IPO filing did not provide any information on how much cash the deal is attempting to raise.

The document shows that VMware, which is in the red-hot virtualization software market, had revenue in 2006 of $703.9 million, up from $387.07 million in 2005. Net income was 86.95 million in 2006, up from $66.78 million in 2005.

Let’s do some back of the envelope math: suppose the company has revenue in 2007 of, oh, $1 billion (maybe that’s high, but it makes the math easy). And suppose the company can sell for five times revenue. That of course would imply a valuation of $5 billion, most of which would belong to EMC; that would be a good chunk of EMC’s current $33 billion market cap.

The point of the IPO, EMC said in a release yesterday, is to “unlock more of VMware’s value for EMC shareholders, as well as strengthen VMware’s ability to attract and retain the software industry’s top talent and reinforce EMC’s commitment to VMware’s strategy of platform neutrality.”

(My theory is that VMWare wants to raise some cash to spruce up its landscaping at HQ to impress its neighbors across the street on Porter Drive in Palo Alto…the world headquarters of Tech Trader Daily.)

EMC yesterday was off 4 cents at $15.70.

EMC 1-yr chart:

Comments

[Jaro:]

So how does this affect EMC shareholders (like me). Will we get some shares of this IPO? Will EMC's share price go up as a result of the IPO? I don't really get it.

2007 Apr 27 08:11 AM