Ford Motor Co., (IW 1000/21) is seeking to expand its software expertise ahead of a shift to electric and autonomous cars, will invest $182.2 million in Pivotal Software Inc., the cloud-computing joint venture of EMC Corp. and VMware Inc.
The investment gives the automaker a stake of about 6.6% in San Francisco-based Pivotal, Ford said. Microsoft Corp. will also invest in a financing round that totals $253 million, Pivotal said, adding that it has no set plans for a public share sale -- an option EMC Chief Executive Officer Joe Tucci said in October could happen in the “not-too-distant future.” For Pivotal, the investments bring in cash to fund operations at a time when an IPO now seems unlikely for the next year or two, according to a person familiar with the companies’ thinking.
Ford has been working to build ties in Silicon Valley. The 113-year-old carmaker expanded a research lab in Palo Alto, Calif. last year and this year created a new unit, Ford Smart Mobility, to expand its presence and partnerships in the tech-focused region.
CEO Mark Fields says he wants Ford to be viewed as both an automotive and mobility company to encompass its efforts in driverless cars and ride-sharing.
EMC, parent company of both Pivotal and VMware, is being acquired by Dell Inc., and the companies are trying to generate cash ahead of the deal. The Pivotal investments free Dell from having to spend money to fund the venture’s growth as the merging companies pursue divestitures of other businesses and an IPO of Dell’s security business to cut costs and raise funds.
Ford has already worked with Pivotal on developing a mobility app called FordPass that it unveiled at the Detroit Auto Show in January. Pivotal developed the software for the app, which lets users search for parking spaces and find, unlock and remotely start their vehicles. Eventually, the app will connect users with ride-hailing and car-sharing services.
Ford’s investment in Pivotal is significantly smaller than the $500 million General Motors Co. invested in ride-sharing service Lyft for a 9%t stake and the almost $1 billion GM paid for self-driving software maker Cruise Automation.
Dearborn, Mich.-based Ford also tried in vain to cut a deal with Alphabet Inc.’s Google on joint development of driverless cars. Fiat Chrysler Automobiles NV earlier this week said it will work with Google to develop about 100 self-driving prototypes, based on the Chrysler Pacifica hybrid-powered minivan.
Pivotal executives have been talking to potential investors since before current CEO Rob Mee took over from Paul Maritz in August, said the person familiar with the companies, who asked not to be named because the discussions aren’t public. The company has about $300 million in annual revenue with roughly half of that coming from lower-margin services businesses and the rest from software.
EMC executives have been talking about a plan to sell Pivotal shares in the public market for three years. Now, on top of the current tough IPO market, Pivotal wants to wait until the software business is a larger percentage of sales so it can attract a higher valuation from investors, according to the person familiar. That makes a share sale unlikely this year or next, this person said.
Microsoft is making the investment because developers are interested in a closer relationship between Pivotal and Microsoft’s Azure cloud services, the company said in Pivotal’s statement. The venture has other big corporate investors -- General Electric Co. paid $105 million for a 10% stake in Pivotal in 2013.