EMC Still Rules VMware

4:25 PM -- VMware today filed a prospectus with the SEC, offering details of the upcoming IPO planned by parent EMC. And it's clearer than ever that EMC is indeed the controlling parent. (See EMC Offers 10% of VMware and VMware Closer to IPO.)

EMC will stay in charge, despite Intel's proposal to invest $218.5 million in VMware's Class A common stock during the IPO, also announced today and included in the prospectus. (See Intel Invests in VMware.)

After the IPO, EMC will own about 89 percent of all of VMware common stock; Intel will own about 2.5 percent; and new investors, 8.8 percent. If an over-allotment option to purchase shares is exercised by the underwriters, EMC will still own 87.5 percent of all VMware common stock, even though new investors would own about 10 percent.

EMC will make off with over half of the IPO proceeds: VMware's offering should raise $741.4 million, given an "assumed initial public offering price of $24" per share. If the underwriters exercise a planned over-allotment, the total could reach $853.7 million. Of that amount, EMC will rake about $477 million back in, since VMware will use the proceeds of its IPO to repay $350 million in debt to EMC and about $127 million to buy its headquarters facilities from EMC.

Of course, that leaves up to $376.7 million for VMware's working capital, to "develop new products and fund capital expenditures and potential acquisitions."Still, any way you slice it, this is EMC's IPO as much as VMware's. It's great to have Intel on board to further synergies between the chipmaker and the leading virtual architecture, of course. But EMC is also getting its piece of the action. An intellectual property agreement between EMC and VMware will ensure that EMC can use VMware's source code and IP, even if EMC wants to produce competing products with it.

The prospectus makes the relationship clear: "EMC will continue to control us following the completion of this offering, and will be able to exercise control over all matters requiring stockholder approval, including the election of our directors and approval of significant corporate transactions."

There are also obvious benefits to being in EMC's pocket -- not the least of which is the protection against marauding stockholder activists, and the vagaries of going it alone in the public markets.

It's an exciting time to be in virtualization, and VMware's imminent IPO should be a highlight of it.

Mary Jander, Site Editor, Byte and Switch