VMware (NYSE: VMW proposed), a Palo Alto, California-based provider of virtualization solutions, is deemed by most to be the “deal of the week” and by some, “deal of the year.”
Bankers plan on pricing 33 million shares of VMware at $27 to $29 each on Monday evening for trading on Tuesday. It’s almost a billion-dollar deal. If VMWare gets priced at the mid-point of that range, the IPO will raise $924 million.
VMware is one of a particular breed of company that tends to perform well when it goes public: These are the pioneers in their fields with eye-catching profits. (More on that, later.)
The IPO is regarded by many hedge fund operators as an “ambulance stock.” They hope that this stock, even if they own it for only a short while, will rescue them by performing well enough to let them recover from some losses they have taken recently in the IPO market.
The term “ambulance stock” comes from Japan’s financial markets decades ago. Back then, brokers would put favored clients in a stock they believed would do well as a way to help them recover from earlier stock market losses.
The VMware deal apparently has all the juice it needs to do well in the aftermarket. Consider the following:
- VMware’s software enables the running of several applications and several operating systems on one server. It has become more applicable and available to individual users.
- The company is considered a pioneer in its industrial field, and the first one from its sector to go public.
- Its sales and earnings are soaring.
- VMware has attracted heavy hitters with “big buck” investments.
- Its offering price was increased to $27 to $29 per share, up from a filing range of $23 to $25 per share.
For the year ending Dec. 31, 2006, VMware reported net income of $85.9 million on revenues of $703.9 million, compared with net income of $66.8 million on total revenues of $387.1 million for the same period a year ago.
For the six months ending June 30, 2007, VMware reported net income of $75.3 million on total revenues of $555.5 million, compared with net income of $35.7 million on total revenues of $285.5 million for the same period a year ago.
And for the three months ending March 31, 2007, VMware reported net income of $34.2 million on total revenues of $296.8 million, compared with net income of $15.2 million on total revenues of $156.4 million for the same period a year ago.
The Heavy Hitters
Intel Capital, the global investment arm of Intel (Nasdaq: INTC) pumped $218.5 million into VMWare in July.
Cisco Systems (Nasdaq: CSCO) invested $150 million in VMWare a few weeks later.
The Passing Parade
During the week of August 6, bankers priced nine of the 13 planned offerings. Two got pulled and another two have been pushed into this week.
Three had the juice to make a splash in the IPO pond. There was a reason. Each dominates their industrial sector. Each has sales and earning growth. They were:
- MercadoLibre (Nasdaq: MELI), a Buenos Aires-based online trading service dubbed “Latin America’s eBay,” priced 16.1 million shares at $18 each on Thursday evening -– the same day that the Dow Jones Industrial Average dropped 387 points as investors grew more worried about the subprime mortgage mess. MercadoLibre closed its opening day on Friday at $28.50, UP 58.3 percent from its initial offering price. (And yes, this was the same Friday when the Federal Reserve injected $38 billion of cash into the nation’s banking system to provide extra liquidity to help the financial markets weather the subprime crisis.)
- E-House (China) Holdings (NYSE: EJ), a Shanghai-based real estate agency offering brokerage, consulting, and related services in China, priced 14.6 million shares at $13.80 each on Tuesday evening — above the $11.50- to $13.50-a-share filing range. It closed its opening day on Wednesday at $19.43 and ended on Friday at $17.99, UP 30.4 percent from its initial offering price.
- WuXi PharmaTech (NYSE: WX), a Shanghai-based pharmaceutical and biotech research and development outsourcing company, priced 13.2 million shares at $14 each on Wednesday evening — above the $11- to $13-a-share filing range. It closed its opening day on Thursday at $19.60 and ended Friday at $18.50, UP 32.1 percent from its initial offering price.
All it took was a little bit of juice for a great aftermarket performance.
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