EMC Corporation (NYSE:EMC) shares moved up $1.06, or 7.79%, to $14.66 in early trading today after the company announced that it would spin off 10% of its VMWare unit. EMC acquired VMWare in 2004 for $625 million in cash and reported revenues of $709 million in 2006, up 83% year over year. EMC said it would retain ownership in the remaining 90% of VMWare and doesn't intend on divesting its share of the company. According to David Goulden, CFO, EMC plans to file a registration statement with the U.S. Securities and
Exchange Commission in late March or early April for the planned IPO,
and the shares could be available for sale sometime in the second
quarter.
This is definitely a situation to keep a close eye on as spin offs can present great opportunities for investment. VMWare has posted very solid growth over the last three years that it has been held by EMC, and continues to outperform the market. It is also worth noting that statistically spin offs have outperformed the overall market by a wide margin during their first year. This is primarily attributable to the fact that spin offs are often companies that benefit from standing alone due to a lack of synergies with their parent company. Moreover, there is occasionally an opportunity to pick up spin off shares at a discount as parent company shareholders occasionally sell their stakes in a spin off immediately after receiving it. Combined, these factors make EMC a stock
worth watching as their summer spin off approaches.
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