VMware beats Q2 FY20 estimates; to acquire Pivotal Software and Carbon Black

VMware (NYSE: VMW) second quarter 2020 earnings and revenue surpassed both analysts estimates and the company’s projection for the quarter. The company also announced that it will acquire Pivotal Software and Carbon Black for a total value of $4.8 billion. VMware shares, which ended flat today, were down about 3% in the extended trading hours.

VMware reported non-GAAP EPS of $1.60 on revenue of $2.44 billion for the second quarter of 2020. Analysts had projeted VMware to post earnings of $1.55 per share on revenue of $2.43 billion.

GAAP net income for the second quarter was $4.93 billion, including a $538 million unrealized loss on strategic investment in Pivotal Software and $4.9 billion discrete tax benefit resulting from an internal transfer of international intellectual property rights, or $11.83 per share.

Non-GAAP net income for the second quarter was $667 million, or $1.60 per share compared to $638 million or $1.54 per diluted share, for the second quarter of fiscal 2019.

VMware guided full-year fiscal 2020 revenue to be $10.03 billion, up 11.8% year-over-year and non-GAAP earnings per share to be $6.54.

Read: Dell Technologies (NYSE: DELL) returns back as a public listed company

Under the terms of the Pivotal merger agreement, Pivotal’s Class A common stockholders will receive $15 per share in cash for each share held, and Pivotal’s Class B common stockholder, Dell Technologies (NYSE: DELL), will receive approximately 7.2 million shares of VMware Class B common stock, based on an exchange ratio of 0.0550 shares of VMware for each share of Pivotal. This transaction, in aggregate, will result in an expected net cash payout for VMware of $0.8 billion.

Pivotal transaction, which has an enterprise value of $2.7 billion, will be funded through cash on the balance sheet, access to short-term borrowing capacity, and the issuance of approximately 7.2 million shares of VMware Class B common stock to Dell.

Under the terms of the Carbon Black merger agreement, Carbon Black stockholders will receive $26 per share cash for each share held, resulting in a net cash payout for VMware of $1.9 billion. The transaction, which has an enterprise value of $2.1 billion, will be funded through cash on the balance sheet and access to short-term borrowing capacity.

Both these transactions are expected to close in the second half of VMware’s fiscal year 2020, which ends January 31, 2020.

Also read: Salesforce (CRM) stock jumps on Q2 earnings beat, strong FY20 guidance

“Building on another solid quarter, we are thrilled about announcing our intent to acquire Pivotal and Carbon Black. These acquisitions address two critical technology priorities of all businesses today — building modern, enterprise-grade applications and protecting enterprise workloads and clients,” said CEO Pat Gelsinger.

At the end of July, Google Cloud and VMware extended their strategic partnership. Google Cloud and VMware announced a solution named Google Cloud VMware Solution, which was created by CloudSimple, a VMware Cloud Verified partner. This new service will allow organizations to run their VMware workloads in Google Cloud Platform (GCP).

VMware stock, which reached a new 52-week high ($206.80) in May this year, had advanced 8% so far in 2019 and 16% in the past 52 weeks.

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