Cisco to acquire equity stake in VMware

Cisco on Friday joined Intel as one of the early investors in VMware prior to an initial public offering of a portion of the company's stock.

Cisco Systems plans to acquire a 1.6 percent equity stake in virtualization software player VMware, mirroring a step Intel took earlier this month.

The investment is part of an upcoming initial public offering (IPO) of 10 percent of VMware's stock.

Cisco said Friday that it plans to buy US$150 million of VMware Class A common shares, which are owned at present by EMC, VMware's parent company. The move is subject to regulatory and other closing conditions. Once the investment has been made, Cisco will own around 1.6 percent of VMware's total outstanding common stock. According to an updated VMware S-1 filing with the U.S. Securities and Exchange Commission, Cisco will buy 6.0 million shares, valuing each VMware share at US$25.00.

VMware is considering whether it will appoint a Cisco executive to its board of directors.

Cisco hopes taking a stake in VMware will help bring two companies closer together and result in more users adopting VMware virtualization software and Cisco networking products. Cisco and VMware also announced they've agreed to collaborate on joint development and marketing.

Earlier this month Intel announced that its venture capital arm, Intel Capital, would invest US$218.5 million to purchase VMware's Class A common stock at a price of US$23.00 per share. The investment will give Intel 9.5 million VMware shares or around 2.5 percent of the company's total common stock. VMware intends to appoint a new member to its board from Intel.

EMC announced plans to spin off 10 percent of VMware in February and plans to offer around 33 million shares priced at between US$23.00 and US$25.00 per share. The storage vendor expects the IPO to take place during its third fiscal quarter, which will end Sept. 30. After the IPO, EMC will continue to control VMware and own the bulk of the company's stock. EMC hopes to raise as much as US$740 million from the public offering.

EMC acquired VMware in January 2004 for US$625 million and has run the company as a separate software subsidiary headed by Diane Greene, VMware's former president and CEO.

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