Originally announced August 22, 2019. Source: GlobeNewswire / VMware Investor Relations.
Overview
VMware, Inc. (NYSE: VMW) and Pivotal Software, Inc. (NYSE: PVTL) announced on August 22, 2019 that they had entered into a definitive merger agreement under which VMware would acquire Pivotal at a blended price of $11.71 per share. The deal represented an enterprise value of approximately $2.7 billion and was positioned as a strategic move to build the most comprehensive enterprise-grade Kubernetes-based portfolio for modern application development.
Strategic Rationale
The acquisition was framed around three core strategic pillars:
- Accelerating VMware’s “Any Cloud, Any App, Any Device” vision by adding Pivotal’s developer-centric platform and tooling to VMware’s infrastructure portfolio.
- Strengthening Kubernetes leadership: VMware had already acquired Heptio (co-founded by Kubernetes creators) and co-developed VMware Pivotal Container Service (PKS) with Pivotal in February 2018. Adding Pivotal deepened that position.
- Combining developer experience with IT operations expertise: Pivotal’s developer tools and services, paired with VMware’s infrastructure management capabilities, were intended to give enterprises an end-to-end platform for building, running, and managing cloud-native applications.
What Pivotal Brought to the Table
Pivotal had spent six years at the forefront of modern software development, offering:
- Pivotal Cloud Foundry (PCF): A leading enterprise platform-as-a-service (PaaS) widely adopted by Global 2000 companies.
- Developer tools and methodology: Agile and lean engineering practices embedded into its services model.
- Spring Framework contributions: Pivotal was a major contributor to the Spring developer framework, which at the time of the announcement was reporting more than 75 million downloads per month.
- Kubernetes-native roadmap: Pivotal had recently launched Pivotal Spring Runtime for Kubernetes and was developing Pivotal Application Service for Kubernetes, signaling a full embrace of container orchestration.
Transaction Details
The deal structure differentiated between Pivotal’s two share classes:
- Class A stockholders (public shareholders) received $15.00 per share in cash.
- Class B stockholder — Dell Technologies received approximately 7.2 million shares of VMware Class B common stock, at an exchange ratio of 0.0550 VMware Class B shares per Pivotal Class B share.
Additional financial details:
- Expected net cash outlay for VMware: approximately $0.8 billion.
- The equity issued to Dell Technologies was projected to increase Dell’s ownership stake in VMware by approximately 0.34 percentage points to 81.09%, based on shares outstanding at announcement.
- VMware held approximately 15% of fully-diluted outstanding shares of Pivotal at the time of the agreement.
- Funding sources: cash on hand, short-term borrowing capacity, and the VMware Class B stock issued to Dell.
The transaction required a majority-of-the-minority vote — approval by holders of at least a majority of Pivotal shares not owned by VMware, Dell Technologies, or their affiliates. Closing was expected in the second half of VMware’s fiscal year 2020, ending January 31, 2020.
Executive Perspectives
“Kubernetes is emerging as the de facto standard for multi-cloud modern apps. We are excited to combine Pivotal’s development platform, tools and services with VMware’s infrastructure capabilities to deliver a comprehensive Kubernetes portfolio to build, run and manage modern applications. Importantly, adding Pivotal to our platform accelerates our broader Any Cloud, Any App, Any Device vision and reinforces our leadership position in modern multi-cloud IT infrastructure.”
— Pat Gelsinger, CEO, VMware
“The time is ideal to join forces with VMware, an industry leader who shares our commitment to open source community contributions and our focus on adding developer value on top of Kubernetes. VMware has a proven track record of helping organizations run and manage consistent infrastructure in support of mission critical applications, and our two companies have already built a strong foundation on our successful VMware PKS collaboration.”
— Rob Mee, CEO, Pivotal
Context: VMware’s Kubernetes Build-Out
The Pivotal acquisition was not an isolated move. By mid-2019, VMware had been systematically assembling a Kubernetes portfolio:
- February 2018: Co-launched VMware Pivotal Container Service (PKS) with Pivotal and Google, targeting enterprise Kubernetes deployments on vSphere and public clouds.
- Late 2018: Acquired Heptio, the company co-founded by Kubernetes creators Craig McLuckie and Joe Beda, bringing deep upstream Kubernetes expertise into VMware engineering.
- August 2019: Announced the Pivotal acquisition, adding a developer platform, Spring ecosystem leadership, and enterprise transformation services.
Taken together, these moves positioned VMware to offer infrastructure, orchestration, and developer experience as an integrated stack — a direct response to cloud-native trends driven by AWS, Google Cloud, and Azure.
Advisors
The transaction involved the following advisory teams:
- VMware: J.P. Morgan Securities LLC (financial advisor); Wilson Sonsini Goodrich & Rosati (legal counsel).
- VMware Special Committee: Lazard (financial advisor); Gibson, Dunn & Crutcher LLP (legal counsel).
- Pivotal: Davis Polk & Wardwell LLP (legal counsel).
- Pivotal Special Committee: Morgan Stanley & Co. LLC (financial advisor); Latham & Watkins, LLP (legal counsel).
Regulatory and Stockholder Disclosures
In connection with the proposed transaction, Pivotal filed a proxy statement and related materials with the U.S. Securities and Exchange Commission (SEC). Investors were directed to review those materials, available through the SEC’s public filing system at www.sec.gov, before making any voting or investment decisions related to the merger.
Pivotal stockholders were also able to obtain filings through the investor relations section of Pivotal’s website or by contacting Pivotal’s Investor Relations department.
What This Meant for the Industry
The VMware-Pivotal deal was a significant consolidation signal in the enterprise cloud-native space. Pivotal Cloud Foundry had been one of the dominant enterprise PaaS platforms, particularly among large financial services and government organizations. Folding it into VMware’s portfolio raised important questions for existing PCF customers about roadmap continuity, and for the broader market about the competitive dynamics between VMware/Dell, Red Hat/IBM (following IBM’s $34 billion Red Hat acquisition in 2019), and the hyperscale cloud providers.
The deal also underscored Kubernetes’ rapid ascent as the enterprise container orchestration standard, with major vendors racing to build complete stacks on top of it rather than proprietary abstractions.
Forward-Looking Statement Notice
This article summarizes a corporate press release dated August 22, 2019. The original announcement contained forward-looking statements subject to risks and uncertainties, including regulatory approvals, stockholder votes, integration risks, and market conditions. Actual outcomes may have differed materially from those projected at the time of announcement. Readers should consult VMware’s and Pivotal’s SEC filings for complete risk disclosures applicable to the period.