VMware IPO set to raise $740m

VMware, the EMC subsidiary that brought virtualisation software to the mainstream, said it expects to raise $741.4m in its initial public stock offering (IPO) - and added that Intel will supply another $218.5m.

Intel Capital has already invested in other virtualisation companies, including SWsoft and Virtual Iron. But Intel's VMware investment is coming well after the virtualisation company has grown beyond its start-up roots: VMware software is mature, the company is well established among customers, and EMC is planning to sell about 10 per cent of VMware's stock in the IPO.

In a regulatory filing, EMC said it plans to sell 33 million shares at a price between $23 and $25 per share, yielding a total between $759m and $825m. At a price of $24 per share, and including over-allotment shares that can be sold, VMware said it expects to raise $741.4m.

Of that money, a lot will disappear rapidly: $127m will be spent purchasing VMware headquarters from EMC, and $350m will pay off debt to EMC for a dividend.

Virtualisation lets a single computer run multiple operating systems simultaneously in different partitions called virtual machines. That lets a single server replace several underutilised ones and, more grandly, permits an infrastructure in which running software tasks can be moved around from one server to another to adjust to changing work priorities.

Virtualisation has existed for years on high-end servers - decades in the case of mainframes - but VMware has benefited by making the technology available on mainstream servers using x86 processors.

Intel intends its investment to encourage collaboration designed to advance VMware adoption on Intel processors, Intel said in a statement. In addition, the companies have formally agreed to expand joint marketing and development. Intel will get a seat on VMware's board, the chipmaker said.

Stephen Shankland writes for CNET News.com