Pivotal Software's stock surges after VMware confirms acquisition talks

VMware is seeking to buy all of the outstanding shares of Pivotal Software. (Pixabay)

Following on the heels of VMware confirming that it was interested in acquiring all of Pivotal's stock on Wednesday, Pivotel's shares were up 66% in mid-morning trading on Thursday.

VMware is seeking to acquire all outstanding shares of Pivotal's class A stock for $15 per share in cash, which would be an 80.7% premium on Pivotal's $8.30 closing price.

Along the same lines as VMware's convoluted relationship with Dell, VMware said in a Wednesday regulatory filing that it had requested that Dell exchange all outstanding shares in Pivotal's class B stock, excluding the class B shares owned by VMware, for class A VMware stock. Dell is both Pivotal and VMware's controlling stockholder.

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As of May 3, Dell had close to 81% of VMware's outstanding common stock and more than 97% of the combined voting power of VMware's outstanding stock, according to CNBC. Dell and Pivotal are working on an exchange ratio for the shares.

On Wednesday, both VMware and Pivotal confirmed they were engaged in negotiations, but Pivotal said "a definitive agreement between Pivotal and VMware has not been executed" and that there was no assurances that a definitive agreement would be reached.

RELATED: VMware announces deal to buy Dell EMC Service Assurance Suite

Pivotal, which has made its mark commercializing the open-source Cloud Foundry platform, was spun out of EMC Corporation, which is now Dell EMC, and VMware in 2013. Both VMware and Dell EMC contributed assets to Pivotal.

Pivotal went public in April of last year, but shares of its stock have declined 66% over the past year. After issuing guidance that was lower than analysts' expectations, Pivotal's stock dropped 41% on June 5.

Due to an agreement with Dell, VMware is the selling agent for some Pivotal products, which allows VMware to collect cash that is then remitted to Pivotal minus a contractual agency fee, according to CNBC. As of May 3, VMware had a 16% financial stake in Pivotal and 24% voting interest in the company.

In July 2018, Dell Technologies announced it would buy out the holders of the shares that tracked the performance of VMware by using a mix of cash and equity in Dell. The arrangement was designed to eliminate the tracking stock, pay down debt and give Dell a means to go public again. That arrangement left VMware unaffected. Dell also considered pursuing a reverse merger with VMware in early 2018.

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