EMC's VMware Unit Plans IPO

Apr 26, 2007 (10:04 AM EDT)

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EMC's VMware unit is planning an initial public offering of up to $100 million in stock, according to documents filed Thursday with the Securities and Exchange Commission.

Under the plan, VMware will offer for public sale 10% of its Class A common stock. EMC will end up with 32,500 Class A shares following the offering and all 300,000 VMware Class B common shares, according to VMware's SEC filing.

VMware develops so-called virtualization software that allows users to partition a server so that it acts like multiple machines.

EMC acquired VMware in 2004 for $635 million with an eye to tapping IT managers' desire to consolidate applications on to as few servers as possible. VMware posted sales of $703.9 million in 2006, up 82% over the previous year.

In a statement, EMC said the IPO will "strengthen VMware's ability to attract and retain the software industry's top talent." Tech vendors have traditionally relied heavily on stock options as a recruiting tool. The company also said the IPO would allow EMC shareholders to tap unrealized value within VMware.

Under the arrangement, EMC will continue to provide VMware with a range of shared back-office services, such as human resource management and tax preparation.

The move isn't without risk. VMware's prospectus notes that the company may have a more difficult time thriving in the hotly competitive virtualization market as a spin-off. "Our current and potential competitors have the ability to dedicate substantially greater resources to developing and protecting their technology or intellectual property rights than do we," the document notes.

Indeed, Microsoft next year plans to release Viridian -- virtualization software that is a key part of the company's campaign to develop products that can compete with those offered by VMware and other specialists. Industry giant IBM also offers a number of advanced virtualization tools.

Citigroup, JPMorgan and Lehman Bros. will act as lead underwriters for VMware's IPO. An offering date was not announced.