By now you're well aware of the pending VMWare IPO; a deal that's going to be one of the largest tech IPOs of this decade. Ever since EMC announced plans to spin out 10% of VMWare in a public offering, just about anyone with a keyboard and an internet connection has tried to speculate on what the company's valuation will be once it starts trading.
The simplest and most truthful answer? A LOT.
But for those who want a slightly more scientific bent, let's take a look at two recent announcements from tech bellwethers Intel and Cisco.
Earlier this month, Intel Capital announced a strategic investment in VMWare:
- $218.5mm for a 2.5% equity stake
- Intel will appoint an executive to VMWare's board
Implied VMWare valuation: $8.47 billion
Today, less than three weeks after the Intel investment was disclosed, Cisco Systems jumps into the fray with its own strategic investment:
- $150.0mm for a 1.6% equity stake
- VMWare "will consider" appointing a Cisco executive to its board at a future date
Implied VMWare valuation: $9.375 billion
Cisco is no stranger to strategic investments, but it's quite telling that it was willing to accept a implied 10.7% increase in terms in less than a month with no concrete promise of board representation just to get a place at the pre-IPO table.
Virtualization is a massively important trend, and VMWare's growth trajectory is astounding. But it has to make you wonder just what price Cisco and Intel think VMWare is going to be worth when the shares are listed in the near future. Interesting times indeed.
Note: This is not a recommendation to buy or sell any publicly-traded security nor is it a recommendation to participate (or not to participate) in upcoming IPO offerings of VMWare or any other company. This discussion is merely a personal analysis to foster discussion for informational purposes only. At the time of this writing, I and/or funds I maintain discretionary control over, maintained a long equity position in CSCO and held a position in INTC convertible debentures. We did not maintain a position (long or short) in EMC. We reserve the right to initiate positions in any of these companies at any time in the future. We may, or may not, have interest in participating in the VMWare IPO or other securities listings. At times, we may maintain derivative options as a hedge on underlying positions.
vmware intel IPO investing cisco valuation virtualization emc software woodrow enterprise+irregulars
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