EMC Announces IPO Plans for VMware
EMC on Wednesday announced plans to sell approximately a 10 percent stake in VMware via an IPO of newly issued VMware stock. EMC will retain ownership of the remaining shares of VMware, and CEO Joe Tucci made it clear the company is not giving up its goose that laying golden eggs. The company will still hold 90 percent of its red-hot virtualization software subsidiary, which it acquired in 2004.
"To answer the question I know will be on your minds, EMC has no intention of spinning out or divesting the remainder of our investment," he told journalists and investment bankers during a conference call.
EMC has no intention of spinning out or divesting the remainder of our investment.
Joe Tucci, CEO, EMC
EMC purchased VMware for $600 million in 2004. Back then, it had revenue of less than $100 million and 300 employees. Today, the EMC subsidiary has grown to 3,000 employees and has seen sales grow 83 percent in 2006 to $709 million, and the fourth quarter ended with year-over-year revenue growth of 101 percent to $232 million.
Tucci said there are three reasons for the IPO: to unlock more of VMware's value for EMC shareholders, to be used as compensation offerings in attracting top-flight talent, and to reinforce EMC's commitment to VMware as an open platform.
Charles King, principal analyst for Pund-IT, said that there had been calls for EMC to spin off VMware entirely, but it would not do that, and this IPO is a good medium ground.
"I definitely think VMware was one of those home run acquisitions of the last decade or so. This allows EMC to maintain full control of the company internally but also unlock some of the value in a way that's positive for company shareholders," he said.
VMware's software is considered the leader in hardware virtualization, which puts multiple separate computing environments onto one computer. This allows one physical server to perform the function of two or more. Virtualization has emerged as a popular strategy for server consolidation as IT shops struggle with cooling and power consumption issues.
EMC expects the IPO to take place this summer, which is when all of the financial details, such as profitability, will be broken out. For the 90 percent of the subsidiary owned by EMC, 100 percent of VMware's financial results will be consolidated in its own financial statements. The portion not owned by EMC will be reflected as a minority interest, according to David Goulden, executive vice president and CFO of EMC.
None of the stock issued for the IPO will be existing EMC stock, added Goulden. All of the shares sold at the IPO will be newly issued.
After a largely uneventful trading day where its stock closed down two cents, EMC's shares rose 91 cents, or 6.69 percent, in after-hours trading.
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