VMware snags Carbon Black and Pivotal for $4.8B

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VMware continues its summer shopping spree with deals to buy Carbon Black and Pivotal Software for about $4.8 billion. (Pixabay)

On the same day as its second quarter earnings, VMware announced it's buying Carbon Black and Pivotal for a combined value of $4.8 billion.

The deals, which are VMware's largest to date, will enable VMware to be a stronger competitor in the hybrid cloud infrastructure and security market sectors.

With Pivotal, VMware said it would be able to deliver an integrated modern apps portfolio combining Pivotal’s next-generation developer platform and VMware’s Kubernetes portfolio.

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Carbon Black, which was founded in 2002, provides anti-malware and endpoint security products that can monitor a company's devices to see if they have been hacked. VMware plans to build a next generation security cloud with Carbon Black’s protection suite and VMware’s other security assets. Adding these companies to VMware’s stable will "allow VMware to deliver software solutions that enable customers to build, run, manage, connect and protect any app, on any cloud and any device," VMware said in its press release.

According to CFTN, Carbon Black hired Morgan Stanley earlier this month to explore opportunities to sell itself. CNBC reported that IBM and Cisco were also interested in acquiring Carbon Black.

Carbon Black shareholders will get $26 per share in cash from VMware for a total of $1.9 billion in cash. The price per share is 14% higher than the stock’s $22.75 per share closing price on Wednesday.

RELATED: Pivotal Software's stock surges after VMware confirms acquisition talks

Dell Technologies owns controlling stakes in both VMware and Pivotal, which made that deal a bit more complicated. VMware and Pivotal both said last week that they were exploring the sale of Pivotal to VMware.

VMware said that it’s buying Pivotal for a blended price per share of $11.71, including $15 per share in cash to holders of Pivotal’s Class A stock, and an exchange of VMware’s Class B common stock for Pivotal Class B shares owned by Dell. The ratio is 0.0550 shares of VMware’s Class B stock for every share of Pivotal’s Class B stock. VMware is paying $800 million in cash for Pivotal, and Dell will now own 81.09% of VMware as a result of the deal.

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.

“Building on another solid quarter, we are thrilled about announcing our intent to acquire Pivotal and Carbon Black,” said Pat Gelsinger, chief executive officer of VMware, in a statement. “These acquisitions address two critical technology priorities of all businesses today — building modern, enterprise-grade applications and protecting enterprise workloads and clients. With these actions we meaningfully accelerate our subscription and SaaS offerings and expand our ability to enable our customers’ digital transformation.”

RELATED: VMware bolsters network monitoring and troubleshooting with Veriflow deal

VMware has some heavy lifting ahead for the integration of companies that it has recently purchased. Yesterday VMware announced it had bought security startup Intrinsic, and on Friday VMware announced it was buying privately held Veriflow to beef up its pervasive network monitoring and troubleshooting capabilities.

The company announced last month it was buying Uhana, which provides AI and machine learning optimization for mobile networks. VMware also bought virtual application delivery controller (ADC) vendor Avi Networks earlier this summer and Bitfusion in July. Using machine learning, Bitfusion can help businesses optimize their workloads with GPU accelerators.

In the second quarter of its 2020 fiscal year, VMware reported $1.60 in earnings per share, excluding certain items, on $2.44 billion in revenue. Analysts polled by Refinitiv had been expecting $1.55 in earnings per share, excluding certain items, on $2.43 billion in revenue for the quarter.

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