Update: VMware files prospectus for IPO

Virtualization software provider's IPO is expected to raise $100 million

New details emerged Thursday of virtualization software provider VMware's plans to sell its stock to the public.

VMware, a subsidiary of storage vendor EMC, filed details of its plans to sell 10 percent of its stock with the U.S. Securities and Exchange Commission (SEC).

According to the filing, VMware will have two classes of stock. EMC will hold 32.5 million shares of Class A and all 300 million shares of Class B. The combined A and B shares are 332.5 million, so if 10 percent are to be sold to the public, that would mean 3.325 million Class A shares could be traded. However, EMC spokesman Michael Gallant said that is only an estimate.

EMC will have 10 votes for each of its B shares while Class A holders will have one vote per share. This voting structure is common in situations where a parent company wants to spin off part of a subsidiary in an IPO (initial public offering), yet retain control over it, said Gallant.

"Given that EMC owns all the Class B shares, EMC will be the majority shareholder, enabling it to control the board of director election. This is [the] structure used in a "carve out" situation, enabling the parent company to continue to maintain control over the subsidiary, yet provide a market for the stock of the subsidiary," Gallant said in an e-mail.

Although the prospectus, called an S-1 filing, states that the IPO is expected to raise US$100 million, Gallant cautioned that figure is just a "placeholder" number and could change later. The filing also does not identify a per-share price at which VMware stock will be sold when the company goes public, sometime at midyear.

EMC said Feb. 7 when announcing the IPO that the funds would go to stock-based compensation for employees and to help EMC shareholders derive more value out of VMware's success.

The offering will "unlock more of VMware's value for EMC shareholders," and help the company "retain and attract the software industry's top talent," EMC Chairman, President and CEO Joe Tucci said at the time.

In releasing its first-quarter 2007 financial results on April 17, EMC noted that VMware was the fastest growing of its product lines, with sales up 95 percent to $256 million compared to $131 million in the same quarter of 2006.

The IPO should attract considerable market attention given VMware's dominance of the virtualization field, said Jawahar Hingorani, an industry analyst at S&P Equity Research.

"If you look at the way that thing is growing you can get an idea that this [IPO] will be fairly well anticipated," said Hingorani.

VMware was founded in 1998 and acquired by EMC in 2004 for $635 million. Virtualization software increases the utilization of servers by allowing multiple versions of software or operating systems to run simultaneously on the same server hardware.

Copyright © 2007 IDG Communications, Inc.

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