Broadcom says it will buy CA Technologies; investors flee
Broadcom stock plunged on the news that the company has agreed to acquire software company CA Technologies, with investors questioning the strategy of the $18.9 purchase and fretting about a loss of focus.
According to CNBC, Broadcom lost $17 billion in value on Thursday as its stock dropped 16%; the stock was down about 14% by midday trading. Bloomberg noted that several analysts downgraded their ratings of the company on the acquisition news, with analyst C.J. Muse of Evercore saying that “there are no clear synergies to Broadcom’s current revenue streams, and [Evercore] is struggling to understand management’s motivation for the deal. Investors may also be worried by a ‘loss of focus’ as far as moving exposure outside of semiconductors.”
Broadcom, in its announcement of the acquisition, said that the purchase of CA Technologies “continues Broadcom’s focus on acquiring established mission-critical technology businesses” and expands the company’s total addressable market “to include [the] growing and fragmented infrastructure software market” — as well as proving the company with “significant recurring revenue.”
The boards of both companies have approved the purchase, which is expected to close in the fourth quarter.
“This transaction represents an important building block as we create one of the world’s leading infrastructure technology companies,” said Hock Tan, president and CEO of Broadcom, in a statement. “With its sizeable installed base of customers, CA is uniquely positioned across the growing and fragmented infrastructure software market, and its mainframe and enterprise software franchises will add to our portfolio of mission critical technology businesses. We intend to continue to strengthen these franchises to meet the growing demand for infrastructure software solutions.”
After Broadcom’s attempted acquisition of Qualcomm was foiled earlier this year, some observers see the company perhaps taking a strategy reminiscent of Japan’s Softbank in investing in a range of promising technologies — although Tan has also told investors that any purchase Broadcom makes must generate satisfactory free cash flow.
Charles King, an analyst at Pund-IT, told MarketWatch that “Broadcom’s executives may simply be assembling a portfolio of sometimes unrelated yet still successful promising businesses, much as SoftBank has been doing.”
Broadcom attempted to acquire Qualcomm earlier this year. At the time, Broadcom was legally headquartered in Singapore, which led to claims of national security concerns and ultimately, a direct intervention by the Trump administration that blocked Broadcom’s bid.
That action prompted Broadcom to shift its legal headquarters for tax purposes to the U.S., so that it would be considered a domestic company instead of a foreign one. On April 3, Broadcom completed that move and is now domiciled at its co-headquarters in San Jose, Calif. That move had no impact on day-to-day operations or where employees are located, according to Broadcom.
In June, Broadcom laid off about 1,100 employees in the wake of its $5.5 billion merger with Brocade last year.
