EMC, a way to play VMWare.

VMWare, considered the hottest ipo of the year to many on Wall street comes out in public this Tuesday. Emc the company who owns Wmware has already raised the offering price from $23-$25 to $27-$29. A few facts about Wmware are in this link.http://biz.yahoo.com/ap/070810/vmware_ipo_spotlight.html?.v=2



What I could gather from the article is that Vmware has a very hot software product which manages running of several applications and several operating systems on one server. By using fewer servers, a company can reduce energy requirements and gain better manageability of the data in the system. This product is so hot that Intel decided to invest 218 million in the company for a 2.5% stake and Cisco came up with another 160 million for 1.5% stake. VMW, reported already earnings of $41 million dollars for the quarter ended on March 31, 100% higher than the same quarter of last year. The company expects to raise 866 million from the deal which part of it will go to pay off some debts to EMC and buy a building from Emc for its headquarters. EMC will retain 87% of the company and the rest will belong to Intel, Cisco and the public. In the event, VMW prices in the middle of the range which is $28 the market cap of the company will be $10 billion dollars.



This is what my thoughts are after looking at the facts. Since Intel and Cisco decided to put that much money in the company they must be seeing a huge market potential. The price they acquired it is not that much lower than the IPO price. They paid $8.7 billion for the company vs $10 billion for the ipo price, that is 17% below IPO which makes me feel that I am not getting screwed over that much, if I buy at IPO price. The problem is that I will not be able to get it at ipo price and I will have to chase the stock in the aftermarket.

BUT WAIT A SECOND. Emc will own 87% of the company which tranlates to $8.7 billion plus the cash they will get from the IPO. So lets say $9 billion. EMC is now worth $37.2 billion of which $9 billion dolars is VMW so this is the mathematical formula. VMW=.2419*EMC or EMC=4.133 * VMW. So if VMW goes up 10% EMC will go up 2.419%. I am buying EMC on Monday to participate indirectly on VMW's IPO.