VMware and Pivotal are Talking Acquisition; Pivotal’s Stock Skyrockets

“Special committees” at VMware and Pivotal, the software company VMware spun off in 2012, have been talking about a potential acquisition, according to a note for investors posted on VMware’s website Wednesday.

The note says nothing’s been decided, and a deal may not happen, but the things are getting serious in those talks, according to an SEC filing by Dell Technologies, which holds controlling stakes in both companies: the committees are “proceeding to negotiate definitive agreements with respect to a transaction…”

Once expected to go on to do great things – it was headed by VMware’s superstar former CEO Paul Maritz in the initial post-spinoff years – Pivotal has seen its stock nosedive, declining 66 percent in the past year. Hoping the special committees come to an agreement, investors rushed back in, propelling a 72 percent spike in Pivotal shares Thursday morning following the announcement.

Pivotal has been the main driving force behind Cloud Foundry, the open source Platform-as-a-Service software. It sells a version of the platform designed for enterprises and coaches enterprise teams to help them switch to developing and running software the way internet giants like Google and Facebook do it.

VMware’s proposal at the moment is to pay $15 cash for all outstanding Pivotal Class A shares – that's Pivotal's 2018 IPO price, which is just under double its closing price this Wednesday – and to exchange some Class A VMware shares for Class B Pivotal shares owned by Dell (at a ratio that still has to be worked out). VMware already holds some Class B Pivotal stock.

Related:Can VMware Remain Cloud Switzerland Under Dell’s Control?

It’s hard to say at the moment what VMware will do if the deal goes through, but Pivotal’s PaaS and the various services it provides would be a big step “up the stack” for the data center software giant whose business revolves almost entirely around corporate infrastructure technology, not software that infrastructure is built to run.

The companies have already been selling solutions that combine VMware’s vSphere and NSX infrastructure software with Pivotal Cloud Foundry. Last year, together with Google, they also launched Pivotal Container Service, a hybrid-cloud platform for running Kubernetes on top of vSphere on premises that gels with Kubernetes running in Google’s cloud.