VMware ups IPO price range; preps for lift off

VMware on Thursday raised the price range for its initial public offering to $27 to $29 a share, up from the previous range of $23 to $25. The company, which is currently expected to launch its IPO next week, will be well received given that it will be one of the few pure virtualization plays.

VMware on Thursday raised the price range for its initial public offering to $27 to $29 a share, up from the previous range of $23 to $25.

The company, which is currently expected to launch its IPO next week, will be well received given that it will be one of the few pure virtualization plays. The company is expected to raise about $600 million and large partners such as Intel and Cisco are buying stakes in VMware. EMC will still own 87 percent of VMware following the offering.

In a regulatory filing, the company said the proceeds from the IPO will be used to repay $350 million in debt owed to EMC; purchase VMware's headquarters from EMC for about $127 million and working capital.

VMware, which will trade under the ticker VMW, plans to offer 33 million shares and has six underwriters including Citigroup, J.P. Morgan, Lehman Brothers, Credit Suisse, Merrill Lynch and Deutsche Bank Securities.

A few recent additions to the prospectus worth noting:

  • VMware reported its second quarter results ended June 30. The company reported total revenue of $296.8 million in the second quarter, up from $156.4 million in the same quarter a year ago. Net income was $34.2 million, up from $15.2 million. That's some heady growth on both the earnings and revenue fronts and goes a long way to explaining why this IPO will be hot.
  • Intel and Cisco are getting a deal at the new raised price range. Intel agreed to buy VMware shares at $23 a share. Cisco got a price of $25. Neither party is obligated to close the purchase.
  • VMware detailed its options and restricted stock plan for its 1,900 employees.
  • Risk factors look basically the same as earlier filings. VMware did note that it has some Sarbanes Oxley controls issues to remedy. "Our independent registered public accounting firm reported to our board of directors a material weakness in the design and operation of our internal controls as of December 31, 2006 related to the capitalization of software development costs," said VMware.

VMware added that it has a fix in place.

"We believe we have a plan in place to remediate the material weakness by implementing additional formal policies, procedures and processes, hiring additional accounting personnel and increasing management review and oversight over the financial statement close process. We believe we had adequate controls in place at June 30, 2007 to remediate the material weakness and that there have not been and will not be any material costs associated with such remediation."

  • EMC will enter a source code and intellectual property agreement that will give it the storage giant access to VMware's technology. VMware notes that EMC could become a competitor in the future. That's kind of doubtful given EMC owns VMware.