VMware IPO Price: Almost At 24/7 Wall St. Pricing Projection (EMC, VMW)

EMC Corp. (NYSE:EMC) has finally done it.  The VMware (NYSE:VMW) partial spin-off and initial public offering has priced.  On Monday morning we gave a projected pricing of $30.00+.  We were close, but it priced at $29.00 per share.  The original $23.00 to $25.00 got bumped to $27.00 to $29.00 for the same 33 million shares.  Go ahead and just include that 4.95 million share overallotment being exercised, because this IPO is highly likely to open at a premium to a large premium.

Here is the critical issue: The company could have literally sold as many shares as it wanted.  In fact, I’d bet all the tea in China, all the corn in Iowa, all the cactus in Mexico, and all the desert sand in Africa that EMC could have sold off the entire VMware company IF IT WANTED TO.  It doesn’t want to, and it will be a while before the company starts to unload some of its holdings.  EMC doesn’t want to do that, and they have been quite consistent and adamant about holding 87% of the company post-IPO.  Because of a class B stock, they have almost the whole vote.  They didn’t want to sell more shares because EMC believes there is more juice to this IPO.

So we did not quite get our $30.00 price or higher, even if this priced at the top of the already raised range.  But what you can bet on, barring a monster crash in the stock market, is that this will have a premium opening.  Maybe a very large premium.  This pricing was a bit surprising, but the company still owns so much unregistered locked-up stock that it actually makes a lot of sense for EMC not to take all the juice out of the VMware share performance on the first day.  Back in June, we predicted a ‘second week in August’ for starters on this pricing.

What will the premium be?  Well, TheStreet.com used a $60.00 possible figure.  Here is what Jim Cramer said on CNBC’s MAD MONEY on Monday regarding his opinion on EMC:  "People thought I was an idiot. But you know what? Stocks don’t always tell the truth in their direction. I think it goes to $23. It’s not too late to pull the trigger."  If this opens at $60.00, well all bets are off. In fact, we noted that at $60.00 or anywhere close right now, that this would mean the wheels have been ripped off the looney wagon. EMC closed up 7.5% at $19.05 on double normal volume, and it looks like it proceeded to trade up another 1.4% to $19.32 in after-hours trading.

We are sending out the EMC-VMware playbook for the special situation investing newsletter subscribers in the morning, mostly on how it pertains to EMC stock and how to value it.  Congratulations EMC and VMware.  Now the rationale will be back in the stock here after tonight and tomorrow.  Stay tuned.

If you don’t know much about virtualization, you better read up on it.  It’s going to be THE next big thing for 2008 and beyond.  Those cheap dual core and quad core processors and cheaper and cheaper DRAM modules are finally turning theory into mainstream.

Jon C. Ogg
August 13, 2007

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

Unfortunately, because of the volume of emails on EMC & VMware we won’t be responding to individual emails on the IPO for a few days.