KeyBanc Downgrades Pivotal Software After VMware Acquisition Bid

Virtualization technology pioneer VMware, Inc. VMW said last week it had inked a definitive deal to acquire Pivotal Software Inc PVTL for $15 per share.

VMware’s offer seems to be the best price that Pivotal Software will receive, and a competitive bid is unlikely at this time, according to KeyBanc Capital Markets.

The Analyst

KeyBanc’s Alex Kurtz downgraded Pivotal Software from Overweight to Sector Weight.

The Thesis

Demand for Pivotal Software’s solutions is concentrated among the largest Global 2000 customers, which has created lower visibility into the company’s quarterly billings, Kurtz said in the note.

See Also: VMware Will Acquire Pivotal Software And Carbon Black

He added that this lack of visibility has been a concern for investors since Pivotal Software’s IPO in April 2018. Now, the situation has been aggravated by the company’s plan to embrace Kubernetes for its core PAS (Pivotal Application Service) products.

This transition “might have been the biggest NT (near-term) risk for Pivotal management as customers waited to see how the new offerings performed,” Kurtz said.

Pivotal Software is scheduled to report its fiscal second-quarter earnings results on Sept. 4. The results will reflect how the company has performed on the transition, the analyst mentioned.

The VMware acquisition deal is expected to close in the second half of fiscal year 2020, and Pivotal Software is unlikely to receive a more attractive competitive bid, Kurtz said.

Price Action

Shares of Pivotal Software traded around $14.88 at time of publishing.