VMware To Acquire Pair of Companies -- WSJ

By Maria Armental

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 23, 2019).

Software company VMware Inc. plans to buy Pivotal Software Inc. and cybersecurity provider Carbon Black Inc., bolstering its push to allow customers to build, manage and secure applications across devices and cloud-computing environments.

"These acquisitions address two critical technology priorities of all businesses today -- building modern, enterprise-grade applications and protecting enterprise workloads and clients," VMware Chief Executive Pat Gelsinger said in a statement.

The proposed deals were disclosed Thursday as VMware reported results for the quarter ended Aug. 2, including a nearly $5 billion tax benefit tied to the transfer of some intellectual property rights to an Irish subsidiary.

VMware, a Silicon Valley company that is majority-owned by Dell Technologies Inc., holds a roughly 15% stake in Pivotal. The proposed Pivotal deal, which the companies valued at $3.6 billion, called for VMware paying a blended price of $11.71 a share for each Pivotal share held.

Dell and Ford Motor Co., another large investor in Pivotal, have agreed to vote for the Pivotal deal, according to a securities filing.

The Carbon Black deal offers $26 a share for each share held, a deal the companies valued at $2.3 billion.

Both transactions are expected to close by Jan. 31, the end of VMware's business year.

"The security industry is broken," Mr. Gelsinger said during a conference call with analysts, adding that the "idea of individual products that are bolted on and patched on is just ineffective for customers."

Mr. Gelsinger said VMware and Carbon Black had been working together for the past two years, "so we've really been de-risking this acquisition."

VMWare on Thursday maintained annual projections of $10.03 billion in revenue, and said that Pivotal and Carbon Black would boost operating income in the first year after the deal closes and add to cash flow and earnings in year two.

Overall, second-quarter profit surged to $4.93 billion, or $11.83 a share, from $644 million, or $1.56 a share, a year earlier. On an adjusted basis, profit rose to $1.60 a share from $1.54 a share a year earlier. Revenue rose 12% to $2.44 billion.

Analysts surveyed by FactSet expected $1.05 a share, or $1.55 a share as adjusted, on $2.43 billion in revenue.

The results included a paper loss of $538 million from its investment in Pivotal, which went public last year, compared with a $231 million gain on the investment in the year-ago period.

The so-called fair value of the Pivotal investment is primarily based on Pivotal's closing stock price on the last trading day of each fiscal quarter. Pivotal started trading at $16.75 when it went public but traded around $9 in early August, according to FactSet. On Thursday, the stock closed at $13.70.

VMware will host its annual conference, VMworld, next week in San Francisco.

Write to Maria Armental at maria.armental@wsj.com

(END) Dow Jones Newswires

August 23, 2019 02:47 ET (06:47 GMT)

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