EMC Announced VMWare IPO Spin-Off News

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EMC Corporation (EMC-NYSE) announced its intent to sell approximately 10% of VMware via an IPO of newly issued VMware stock. EMC will retain ownership of the remaining shares of VMware, and has no intention of divesting this ownership interest. VMware, according to EMC, is the global leader in software for industry-standard virtualized desktops and servers and is currently a wholly-owned subsidiary of EMC.  Here is CEO Joe Tucci’s comment: "VMware is one of the fastest-growing businesses in the history of the software industry. We expect the IPO to unlock more of VMware’s value for EMC shareholders while also strengthening its ability to retain and attract the software industry’s top talent."

This does potentially unlock extra value for EMC holders, but keep in mind the size of this.  VMware had sales in 2006, growing revenues 83% during the year to $709 million. It finished the fourth quarter of 2006 with year-over-year revenue growth of 101%, delivering accelerating year-over-year growth for the fifth consecutive quarter.  The IPO is not expected to have a material impact on EMC’s 2007 business outlook.  EMC gave guidance for 2007 revenue to be at least $12.7 billion with its last earnings, and that was inclusive of the RSA Security and VMWare units.

EMC closed down $0.02 at $13.60 and had a market cap at the close of $28.9 Billion; the yearly high is $14.75.  Now it is up over 8% on the news at a $14.80, so it would have an implied $31 Billion market cap.  This is good news no doubt, but now we have to see if an 8+% instant gain is merited on this alone.

Jon C. Ogg
February 7, 2007