EMC’s VMWare IPO: New Preliminary Data

The upcoming and expected IPO out of EMCCorp. (EMC-NYSE) for the VMWare unit thissummer is still on track, and there are few IPO’s this summer that are going to be as sought after as VMWare.  Yesterday I spoke with EMC and got a bit more data that was able to clarify some timing issues.  There was an amended filing back on June 11 with more data forthe SEC and there are now moreunderwriters than in the original S-1 filing: lead underwriters areCitigroup, JP Morgan, and Lehman; co-managers are now listed as CreditSuisse, Merrill Lynch, and Deutsche Bank; other managers carried on theamended filing are Banc of America, Bear Stearns, UBS, Wachovia, A.G.Edwards, and HSBC. We have been waiting for this IPO since February when the IPO was first filed.

Forstarters the company cannot say or predict when their IPO of the VMWareunit will come.  But some inferences can be made regarding this.  The amended filing is not a big deal but they are still waitingto hear back from the SEC for all conditions to be met on employeestock options (implied at at $23) and other issues.  EMC posts earningson the morning of July 24, 2007, and it is probably a safe bet that youwon’t see the IPO before then.  The company still wants the IPO in thesummer rather than later.  If I was a making odds on timing, I would start theodds in the second week of August.  That of course is subject to thewhim of the stock market and subject to SEC filings and amendments, andthat could easily change.  Its VMworld 2007 conference is September11-13 in San Francisco, and it would seem quite obvious that thecompany wants this IPO wrapped up by then.

VMware’s virtualization technology allows for multiple operatingsystems to run side-by-side on a single machine.  This helps customerssave on and use hardware more efficiently without the need for morethan one PC.  VMware posted net income of $87 million on revenue of$704 million in 2006 (up 82% from $387.1 million in 2005). Q1 2007revenues were $258.695 million versus $129.077 million in Q1 2006, andservices were a larger percentage of total revenues compared to licenserevenues.  The company claims 20,000+ customers and has 100% of Fortune100 companies and 84% of the Fortune 1000 companies.  Partnerships arelisted as the following: 200+ leading hardware, software, network andstorage companies; 4000+ resellers, distributors, and systemsintegrators.  We had also noted back at the end of February how VMWare was successfully taking on Microsoft (MSFT-NASDAQ) as a competitor.

VMWare was acquired when it was private in 2003 and the dealclosed in early 2004 for closeto $625 million, and this upcoming IPO has been one ofthe issues that helped EMC’s stock climb from under $13.00 in March tonorth of $17.50; in May we noted a roadblock at EMC’s multi-year highs.  Roughly 10% of the company is what is expected to cometo market in an IPO, but EMC shareholders will not receive shares in aspin-off as this is an IPO and similar to the old ‘tracking stock’ IPO.

We’ll be sending out expectations on EMC and VMWare tosubscribers of the 24/7 Wall St. Special Situation Investing Newsletter (Trial sign-up) and some historical data comparing this to other suchscenarios regarding other IPO’s that are of hot units out of keytechnology companies.

  Jon C. Ogg 
  June 27, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.