VMW priced at $29:
VMware Raises $957 Million in Initial Sale, Signaling Demand
By Elizabeth Hester
Aug. 13 (Bloomberg) -- EMC Corp.'s VMware software business raised $957 million in an initial public offering today, at the top end of the forecasted range.
The company sold 33 million shares for $29 each, Palo Alto, California-based VMware said today in a statement distributed by PR Newswire. The company predicted in a regulatory filing last week that the range would be $27 to $29 a share. Underwriters have the option to purchase an additional 4.95 million shares if demand warrants, bringing the total to $1.1 billion.
VMware makes programs that let server computers run several operating systems, such as Microsoft Corp.'s Windows, allowing one server to do the work of many ``virtual'' machines. That helps customers make more efficient use of computer data centers and cut energy costs.
``This is a hot area,'' said Kevin Landis, chief investment officer of San Jose, California-based Firsthand Capital Management, which oversees $750 million including EMC shares. He spoke before the pricing. ``It shows that even in a mature area of technology there are always niches that are growing faster.''
Before VMware, 29 technology companies had raised a total of $3.79 billion on U.S. stock markets this year, compared with the $2.3 billion from 22 IPOs for all of last year, according to Bloomberg data. Interest in initial public offerings is holding steady even as shares worldwide tumble on concern that defaults in U.S. subprime mortgages and a credit crunch may trim economic growth and earnings.
EMC Purchase
EMC, the world's largest maker of data-storage computers and software, bought VMware in 2004 for $635 million. In February, Hopkinton, Massachusetts-based EMC announced plans to sell about 10 percent of VMware as newly issued shares in an IPO. EMC will remain VMware's majority shareholder.
The shares will trade on the New York Stock Exchange tomorrow under the ticker ``VMW.''
Part of the attraction of VMware is its limited competition, analysts said.
``There's no competitor of any scale you can point to,'' said Brenon Daly at 451 Group, a market researcher in San Francisco. ``It's basically had the market to itself, and it's reflected in the revenues.''
VMware's net income rose 29 percent to $85.9 million in 2006, while sales gained 82 percent to $703.9 million, according to regulatory filings. In the first quarter of this year, profit doubled to $41.1 million while sales also doubled to $258.7 million.
Last month, Intel Corp., the world's biggest computer-chip maker, agreed to invest $218.5 million for a 2.5 percent stake in VMware. Cisco Systems Inc., the biggest maker of computer- networking equipment, will buy $150 million of VMware shares from EMC for a 1.6 percent holding. Both Cisco and Intel have partnerships with VMware.
Stanford University
VMware was co-founded in 1998 by Chief Executive Officer Diane Greene and her husband Mendel Rosenblum, who is chief scientist. The technology for VMware's products stems from research by Rosenblum at Stanford University, where he is an associate professor in the computer science department, according to VMware's Web site.
Proceeds from the sale will be used to repay $350 million in debt owed to EMC, according to a regulatory filing. Another $127 million will be used to purchase VMware's headquarters. The remainder will be put back into the business.
The sale is being managed by Citigroup Inc., JPMorgan Chase & Co., Lehman Brothers Holdings Inc., Credit Suisse Group, Merrill Lynch & Co. and Deutsche Bank AG.
To contact the reporter on this story: Elizabeth Hester in New York at ehester@bloomberg.net ;
Last Updated: August 13, 2007 19:14 EDT
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