VMware files prospectus for IPO

Company files Form S-1 Registration Statement with the U.S. Securities and Exchange Commission

New details have emerged of virtualisation 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 per cent of its stock with the US 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 per cent 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 was 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 was common in situations where a parent company wanted to spin off part of a subsidiary in an Initial public offering (IPO), yet retain control over it, Gallant said.

"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 email.

Although the prospectus, called an S-1 filing, states that the IPO is expected to raise $US100 million, Gallant cautioned that figure was 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.

On February 7, EMC said 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 would 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 per cent to $US256 million compared to $US131 million in the same quarter of 2006.

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

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

VMware was founded in 1998 and acquired by EMC in 2004 for $US635 million. virtualisation software increases the utilisation of servers by allowing multiple versions of software or operating systems to run simultaneously on the same server hardware.

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