VM Ware – EMC’s Explosive IPO Jackpot

Fast Money’s Guy Adami and Mad Money’s Jim Cramer has been raving about EMC’s growth prospects for the last few month pushing the stock from $12 to just about $18.60 as we speak.  (I own EMC October Calls).  They both claim that the valuation of VM Ware which they will hold almost 90% interest when it’s finally done is going to push their stock much higher than it is.

VM Ware’s IPO date has been set at August 18th.   The initial public offering of 33 million shares in the virtualization software maker will come down Aug. 14 at a range of $23 to $25 each, according to the company but Intel and Cisco had purchases interest in VM Ware before IPO expecting greater upside.  Cisco invested $150 Million for about 1.6% of VMware giving a valuation of $9.4 Billion wheras Intel which invested $218.5 million a few weeks back for a valuation of $8.8 billion.  Under these circumstances we should expect VM Ware to be worth close to $10 billion.

Let’s do the numbers.  They are selling 33 million shares at the top end of $25 to raise $825 million which is about 6% of all outstanding interest (100% – 90% (EMC) – 1.6% (Cisco) – 2.5% (Intel) = 6%).  This comes out to be a valuation of $13.75 billion which could rise if the IPO price goes above the high end of $25 which almost every analyst on earth expects.

So if EMC as of today’s close is worth about $38 billion minus a $12.4 billion stake in VM Ware is worth $24 billion by itself minus $1 billion in cash = $23 billion.  It’s expect to have $13 billion in revenue minus about up to $2 billion for VM Ware and that’s at least $11 billion in revenue with a good profit margin.  So trading at only 2 times cash with a 15% growth rate would suggest that EMC is undervalued.

Cramer put his targets at $30 and up.  Not only is he pitching this, he has owns it for his charitable trust as of last week!  We’ll see if Cramer is right.

What is do VM Ware do?  What is Virtualization?

Virtualization software carves up server processing power into individual slices. Each slice handles a different task, such as payroll processing or email. This lets a single server handle functions that were previously handled by many.

Virtualization is also used for data storage. It lets multiple devices on computer networks find and use idle capacity on the same storage appliance. This limits the number of storage units that companies must purchase, and it cuts down on the staff required to operate them.