Broadcom Signs $19 Billion Deal To Acquire Software Company CA Technologies

PUBLISHED BY
Carrie Ann



TAGS:


3 years ago




Chipmaker Broadcom on Wednesday announced its $18.9 billion deal to acquire software company CA Technologies. The deal marks the Broadcom’s investment beyond semiconductors realm while also appraising investors’ confidence in CEO Hock Tan’s deal-making credentials.

Broadcom offered $44.50 per share for CA and will fund the transaction with cash on hand, according to Reuters.T he acquisition, which has been announced by both companies, represents a strategic win for Broadcom, following its failure to takeover semiconductor peer Qualcomm Inc in its ongoing mission to acquire “mission critical technology businesses.” Qualcomm acquisition deal was blocked by the U.S. President Donald Trump, arguing it would be a threat to U.S. national security.

However, Broadcom is reported to have re-domiciled to the U.S. from Singapore, officially placing it outside the scrutiny of the government panel that review deals for potential risks in national security, the Committee on Foreign Investment in the U.S. (CFIUS).

The chipmaker’s expansion model has taken its toll from deal-making. Broadcom share rise this year by 30% from 4% in 2013 is credited to acquisitions spearheaded by Tan, with support from private equity Silver Lake.

Investors and analysts are scrambling to identify why CA Technologies was considered by Tan as Broadcom’s next acquisition, as potential synergies between both businesses still look blurred. The acquisition took Wall Street by surprise and drove down Broadcom share by 7% in after-hours trading. CA Technologies acquisition is being considered more like an investment by many, not a merger of complementary businesses.

“Investors will wrestle and try to gain comfort in (the) strategic rationale and its impact to capital allocation, lots of explanation (is) needed.” analyst Amit Daryanani from RBC Capital Markets wrote to clients.

CA Technologies, which is currently seeking to expand in business software, specializes in software for mainframe computers and big servers which is currently replacing cloud computing. While Broadcom, on the other hand, produces chips for smartphones, networking equipment, and computers. Broadcom would only benefit from CA’s recurring revenue, instead of operational synergies, looking at the incongruent corners of the technology market both companies occupy.

Tom Krause, Broadcom Chief Financial Officer defended the deal’s rationale in an interview, disclosing the company’s experience beyond chipmaking to include selling networking gear to big firms operating data centers. Broadcom acquired Brocade Communications Systems, a networking gear company for $5.5 billion last year. The networking gears by Brocade often connect to IBM mainframes; the same mainframes taken care of by CA’s software, Krause said.

“What we do is buy mission-critical technology businesses,” Krause added. “CA is a mission-critical technology”

It is not clear how CEO Tan would integrate CA’s operation into Broadcom which is currently on a move to shift to the trending subscription billing financial model in the industry, said Summit Insight Group analyst Kinngai Chan.

“We believe this planned acquisition definitely will create some uneasiness amongst its current investor base,” Chan added, evaluating Broadcom’s surprising deal with CA.

Carrie Ann
Carrie Ann is Editor-in-Chief at Industry Leaders Magazine, based in Las Vegas. Carrie covers technology, trends, marketing, brands, productivity, and leadership. When she isn’t writing she prefers reading. She loves reading books and articles on business, economics, corporate law, luxury products, artificial intelligence, and latest technology. She’s keen on political discussions and shares an undying passion for gadgets. Follow Carrie Ann on Twitter, Facebook

Recent Posts

UK’s Sanne agrees to consider Cinven bid

UK’s Sanne agrees to consider Cinven bid

Sanne, a UK fund administration business that provides alternative asset and corporate services, has agreed to hold talks with private equity firm Cinven over a potential £1.4bn t
6 hours ago
Global stocks rise as investors ignore inflations indicators

Global stocks rise as investors ignore inflations indicators

Global stocks rose to an all-time high, with investor showing confidence in a strong economic recovery from coronavirus and the vaccine effect, but the market is still a bit cautio
6 hours ago
UK watchdog whacks Amazon with probe for unfair data collection practices

UK watchdog whacks Amazon with probe for unfair data collection practices

The Competition and Markets Authority will focus on whether Amazon, Inc. favors merchants that use its delivery services.
3 days ago
Altice buys 12 percent stake in BT worth £2 billion

Altice buys 12 percent stake in BT worth £2 billion

Altice said it did not intend to make a bid for the British Telecoms company, though the takeover code also does not allow it to make an unsolicited buyout offer for six months wit
3 days ago
G7 countries agree on broad principles of minimum corporate tax deal

G7 countries agree on broad principles of minimum corporate tax deal

The world’s richest nations (G7) reached a landmark accord setting a global minimum corporate tax rate for multinationals. Would it be effective in tackling tax evasion and avoid
3 days ago
BC Partner goes the Continuation Fund way to strike a $7bn deal

BC Partner goes the Continuation Fund way to strike a $7bn deal

BC Partners, a UK private equity firm, has floated a “continuation fund” deal, one of Europe’s largest such deals, by transferring its 47 per cent stake in the academic publi
3 days ago