UPDATED 20:27 EDT / AUGUST 14 2019


All in the Dell family: VMware in talks to acquire Pivotal Software

Pivotal Software Inc. is looking to reunite with its parent company VMware Inc., which spun it out in 2013.

The companies, which are both majority-owned by Dell Technologies Inc., said they’re holding talks regarding an acquisition priced at $15 per share, which represents an 80% premium to Pivotal’s stock price at close of trading today.

Details of the acquisition were revealed in a joint Securities and Exchange Commission filing today by the companies. The document said representatives of the companies are “proceeding to negotiate definitive agreements with respect to a transaction to acquire all of the outstanding shares of Class A common stock of Pivotal for cash at a per share price equal to $15.00.”

Pivotal’s main product is a commercialized version of the open-source Cloud Foundry platform, called the Pivotal Application Service, which is used for software development. PAS provides developers with a range of clouds, frameworks and application services to work with. The idea is to make it easier for developers to build, test, deploy and scale up apps that run on a variety of cloud platforms.

Pivotal also works closely with VMware. Much of its work with the virtualization software giant has involved integrating the Kubernetes container orchestration manager with its platform, via their joint Pivotal Container Service. PKS, as it’s called, helps developers manage numerous Kubernetes clusters at scale by handling many of the complex configuration tasks.

More recently, Pivotal announced another service called PAS on Kubernetes, which adds more features to its Cloud Foundry-based platform for developers who want to move their apps into software containers so they can run unchanged on multiple computing platforms.

Stu Miniman, an analyst at SiliconANGLE sister market research firm Wikibon, who in June predicted a possible merger between Pivotal and VMware, said the deal makes sense because both companies are looking to go “all in” on Kubernetes.

“Pivotal Labs is a great team to help customers adopt cloud-native methodologies,” Miniman said. “When Pivotal was created, there was a huge gap between where VMware was and where Cloud Foundry was going, but they need to be tied more closely together for both to succeed in the future.”

Pivotal’s bottom line could also do with a boost given its poor financial performance this year. The company launched its initial public offering of stock back in April 2018. Initially it performed quite well, but its shares crashed 28% in June after it posted disappointing first-quarter earnings results and slashed revenue targets for the next three months.

Constellation Research Inc. analyst Holger Mueller said it was inevitable that Pivotal would struggle because the market reality is that more and more application development is moving to public clouds at the expense of platforms such as Cloud Foundry.

“With VMware buying Pivotal, it will be able diversify into platform-as-a-service,” Mueller said. “It also means Pivotal won’t become an embarrassing episode in the Dell saga.”

Most important, he added, executives can keep relying on CloudFoundry to build their next-generation applications. “In the long run, VMware has the opportunity to create a multicloud PaaS, in line with its ‘VMware everywhere’ strategy,” he said.

In any case, Pivotal’s investors seem a lot happier today. The company’s stock rebounded on news of the potential acquisition, surging almost 70% in after-hours trading.

“VMware is the software ‘mother ship’ for Dell with a proven track record of go-to-market execution, engineering excellence and the ability to consistently create shareholder value,” said another Wikibon analyst, Dave Vellante. “Pivotal, on the other hand, has consistently struggled to achieve industry leadership and relevance.”

Photo: Robert Hof/SiliconANGLE

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