EMC’s (NYSE:EMC)partial spin-off of VMware (NYSE:VMW) in the long-awaited IPO should price later today for a Tuesday pricing, although some reports had indicated a Monday trade over the weekend. As of 9:10 AM EST, the properfilings were not in for a trade today and even though that can change Tuesday should be the day. EMC shares are up 4% in early trading.
Based on the brokerage community commentary and based on the flurry ofinquiries and activity from readers here and at other onlineinformation services, this should get a premium pricing. We had beenwondering why EMC itself in employee exchange offers had not ratchetedthe price range up a few weeks ago. The demand is here from retail andfrom institutions and this "virtualization" trend is something you aregoing to hear a lot more about.
By all the looks of it, VMware couldprice well north of $30.00 per share. A $30.00 per share pricing wouldgive this roughly a $10 Billion market cap, but keep in mind that sofar only 33 million shares have been committed and EMC is going to hold 87% of the stock even after the IPO. It is probably a safebet to assume the 4.95 million share overallotment will be exercised. Jim Cramer on TheStreet.com has predicted as high as $60.00 per share on VMware,giving it a market cap in the vicinity of $20 Billion all said anddone. If this prices up that high it would be more than shocking andwe’d think the wheels of financial rationality had come off the crazymarket bandwagon. But nonetheless, this could well price north of the$27.00 to $29.00 higher revised range. We don’t yet have any ratios, but theshares have been inquired about to death and this was unofficiallyoversubscribed before the roadshow even kicked off last month. This could easilyprice north of $30.00 and it would be a surprise if it didn’t. A major market tank can trim some demand, buteveryone wants in this IPO so don’t be shocked if it indicates higherand higher.
We’ll be sending out a more detailed pricing and playbook for this tonight for our special situation investing newsletter, but we want to warn that if it prices intraday then it will create some exacerbated reactions potentially both ways.
We expect at least one or two more "virtualization" companies willfile to come public in the next few weeks to months based on thestrength here. Look at the backers of one competitor. Here were the employee conversions from last week and it almost seemed as though some of the employees were holding out. The last amended prospectuslisted Citigroup, JPMorgan, Lehman Brothers, Credit Suisse, MerrillLynch, and Deutsche Bank in the syndicate cover; although there weremore co-managers previously listed in this and that may just be anabbreviated group.
Jon C. Ogg
August 13, 2007
Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.
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