VMware Dropping $4.8B to Buy Carbon Black, Pivotal Software

VMware is shelling out big bucks for two companies to fill out its technology stack: developer platform Pivotal Software for $2.7 billion and cybersecurity firm Carbon Black for $2.1 billion.

“These acquisitions address two critical technology priorities of all businesses today—building modern, enterprise-grade applications and protecting enterprise workloads and clients,” VMware CEO Pat Gelsinger said in a press release. “With these actions we meaningfully accelerate our subscription and SaaS offerings and expand our ability to enable our customers’ digital transformation.”

VMware (NYSE: VMW), based in Palo Alto, CA, sells virtualization software and a variety of cloud tools and services. The company announced the deals alongside its second quarter earnings report, and plans to hold an executive question and answer session about the transactions midday Friday.

The agreement with Pivotal (NYSE: PVTL) values the San Francisco company at $15 per share, a premium from the $13.70 it closed at Thursday before news of the deal broke. VMWare, which already owned a portion of Pivotal, is also buying Class B shares of the company owned by Dell Technologies (NYSE: DELL). (Class A shares will be bought for $15 each, while the Class B shares owned by Dell will get 1/20th of a share of VMware in return, the company said. The deal also increases Dell’s ownership stake in VMware by about 0.34 percentage points, to 81.09 percent.)

VMware pegs the enterprise value of the Pivotal deal at $2.7 billion.

Pivotal went public in April 2018 at $15 a share, valuing it at $3.8 billion back then. The company had spun out of EMC and its then-subsidiary VMware in 2013. Dell bought EMC in 2016.

VMware’s all-cash deal for Carbon Black (NASDAQ: CBLK) values the company at $26 per share, while the cybersecurity company’s shares traded at $24.50 prior to news of the deal. The transaction has an enterprise value of $2.1 billion, VMware said.

Carbon Black, founded in 2002 by offensive hackers from the US National Security Agency and the Central Intelligence Agency, went public a month after Pivotal, in May 2018. It hit the markets at $19 per share and was valued at $1.2 billion then. Shares of the company’s stock peaked in June 2018 at $34 per share before falling as low as $12.50 in February.

CEO Patrick Morley told Xconomy in May that he tells employees not to worry about the stock price fluctuations.

“I tell people not to focus on the IPO, but it’s hard to ignore,” said Morley, the company’s CEO since 2007. “You have to be cautious not to equate value with the stock price.”

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