VMware Completes Rescue Acquisition of Pivotal

Stephen L Kanaval  |

Source: Pivotal

VMware, Inc. is ending the decade with a bang by finally closing its acquisition of Pivotal for $2.7 billion. The deal was originally announced in August as part of an acquisition spree by the virtualization infrastructure provider (a $2.6 billion deal with Carbon Black, a leader in cloud-native endpoint protection, was announced around the same time and closed in October). However, these announcements disappointed investors at the time, and the stock slipped to its lowest point of the year on the news. VMW has since recovered to $152 at the time of writing, which gives it a small gain in price for the year but is a far cry from the company’s spring highs.

VMware and Pivotal are, in a sense, reuniting as the latter was originally spun out by EMC Corporation (now DellEMC), VMware and General Electric in 2012, so these companies could work on transformative initiatives like Cloud Foundry, for which Pivotal is now most well known. Pivotal went public on the NYSE in April 2018 and the future seemed bright for the company (mainly due to a $650 million investment from Ford) until the stock plunged 42% after a disastrous earnings report in June.

The report was troublesome not so much for its bottom-line numbers, but rather the company’s pessimistic 2020 guidance. Pivotal saw reason to cut revenues for the year ahead by $40-$50 million. At the time, Wedbush analyst Daniel Ives remarked this about the “train wreck” quarter: “While management blamed a ‘complex technology landscape,’ which negatively impacted the quarter, it is clear to us that this management team does not have a handle on the underlying issues negatively impacting its sales cycles and the activity in the field which gives us concern that this quarter will be the start of some ‘dark days ahead’ for Pivotal (and its investors).” Ives followed this statement by slashing the company’s price target to $15 from $26.

Shortly after this quarter, VMware hinted about buying Pivotal, and now the deal is done.

“Pivotal has fundamentally changed how the world’s biggest brands build and manage software with a focus on developer productivity through platform abstractions and development techniques as well as connecting the business with the developer,” said Edward Hieatt, senior vice president, customer success, Pivotal. “The combination of Pivotal and VMware offers the most comprehensive application platform in the industry.”

The transaction looks like a bailout – Dell still owns the majority of Pivotal and VMware, but VMware (who already sells Pivotal service to its customers) can certainly fold Pivotal Cloud Foundry into its effort to transition legacy development process into container development platforms and Kubernetes open-source container orchestration infrastructure. While VMware is the larger company, Pivotal has the closer relationship with development teams.

According to editorials from ZDNet, VMware is 100% sold on Kubernetes as the magic bridge that will link IT and app developers. The company itself demonstrated its belief in Kubernetes when it bought Bitnami in May. Bitnami builds open-source Kubernetes environments across any cloud platform.

While many will focus on VMware and Pivotal, Dell is really the man behind the curtain here. According to a ZDNet’s Editor-in-Chief Larry Dignan, VMware is the “glue” holding much of the Dell IP together, and the next few years will be about Dell building out its hybrid cloud apparatus.

"Dell Technologies writ large is in a unique position to bring a strong, rational hybrid cloud solution to market," said Matt Baker, senior vice president of Dell EMC strategy and planning.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer. The author of this article, or a firm that employs the author, is a holder of the following securities mentioned in this article : None


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