VMware’s plan to acquire Pivotal Software reflects a rise in Pivotal’s shares

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Pivotal Software Inc, a software and services company and VMware Inc., its parent company are negotiating a deal for VMware to acquire Pivotal as per a recent regulatory filing from Dell Technologies Inc. VMware, Pivotal, and Dell Technologies had jointly filed the document on Wednesday and informed the government regulators about the potential transaction.

Also, the regulatory filing stated that 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.”

According to Reuters, “The VMware Special Committee has requested that Dell exchange Pivotal Class B stock for VMWare Class A stock.”

This deal will offer around $4 billion to Pivotal and with this news doing rounds, on Wednesday, Pivotal’s shares rose 63% to $13.60. Meanwhile, VMWare’s shares has shown a downfall of 3% at $148.25 in extended trading.

On Wednesday, Dell’s shares also saw a downfall, 1.65% to $47.80 in after-market trading, while Dell is also the controlling stockholder for both Pivotal and VMware as they both are majorly owned by Dell. Again, on Thursday, Pivotal shares saw a jump of as much as 72% premarket.

However, it seems the companies are still in talks and nothing has been finalized as of now. As per Business Wire’s post, “A definitive agreement between Pivotal and VMware has not been executed. There can be no assurances that a definitive agreement will be executed between the parties.”

Pivotal had launched its initial public offering of stock last year in April. Initially, the company performed well, but its shares dropped 28% in June after facing disappointing first quarter earnings results. And it seems that the talks of this deal have already started benefiting the company which is evident by the rise in the shares.

While VMware always had decent track record with respect to go-to market execution, with Pivotal, VMware will now be able to experiment with PaaS (Platform-as-a-Service).

Holger Mueller, Constellation Research Inc. analyst said in statement to CNBC, “With VMware buying Pivotal, it will be able to diversify into platform-as-a-service.” Mueller further added, “It also means Pivotal won’t become an embarrassing episode in the Dell saga.”

Wikibon analyst, Dave Vellante said, “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.”

Vellante further added, “Pivotal, on the other hand, has consistently struggled to achieve industry leadership and relevance.”

Few users think that this was a strategic move by Dell for its own benefit by increasing Pivotal’s shares.

A user commented on HackerNews, “Dell owns Pivotal. Dell owns VMware. Dell has debt. Pivotal goes public at $15/share. Pivotal stock tanks. VMWare buys Pivotal at $15/share. Dell has less debt. The difference between Pivotal’s internal share price, prior to going public, and their IPO price is pure profit for Dell. This was entirely a tactical move to reduce debt for Dell. Thanks for footing the bill shareholders!”

To know more about this news, check out the post by Reuters.