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M&A Head-Scratcher: Broadcom’s CA Buy ‘Makes Little Sense’

Confused

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Four months after President Trump stopped its Qualcomm acquisition, Broadcom now is making an $18.9 billion bid for CA Technologies in a deal that one analyst says makes little sense.

In response to the news, Broadcom lost $19 billion in market value as its stock plunged 19 percent to $197.50 —  the company’s worst day ever, according to a Reuters report.

Channel Partners contributor Michael Finneran, of dBrn Associates, said when he initially heard about the deal he was confused because of the “total lack of synergy between the two parties” and after further consideration, “it makes even less sense.”

Michael Finneran

Michael Finneran

“Broadcom sells chips to equipment manufacturers (and) CA sells mainframe infrastructure software to enterprises,” he said. “Not only are there virtually no complementary features between their product lines, distribution channels, customer bases — the two businesses have nothing to do with one another! How can they possibly ‘improve’ one another? If Broadcom wants to go this far outside of their area of competence, what don’t they buy a pizza company?”

Still, Hock Tan, Broadcom’s president and CEO, said the transaction represents an “important building block as we create one of the world’s leading infrastructure technology companies.”

“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,” he said. “We intend to continue to strengthen these franchises to meet the growing demand for infrastructure software solutions.”

Broadcom couldn’t be reached for comment on how this will impact partners of both companies.

Broadcom intends to fund the transaction with cash on hand and $18 billion in new, fully-committed debt financing. The deal is expected to close in the fourth quarter of this year.

“We are excited to have reached this definitive agreement with Broadcom,” said Mike Gregoire, CA’s CEO. “This combination aligns our expertise in software with Broadcom’s leadership in the semiconductor industry. The benefits of this agreement extend to our shareholders who will receive a significant and immediate premium for their shares, as well as our employees who will join an organization that shares our values of innovation, collaboration and engineering excellence. We look forward to completing the transaction and ensuring a smooth transition.”

M&A advisory firm Martin Wolf said Broadcom could help diversify its assets through the CA deal by adding cloud-based and traditional enterprise-software capabilities.

“The company has usually stuck to purchases in the semiconductor space in the past, but it’s expanding to include newer offerings, as exemplified by its acquisition of Brocade for $5.9 billion last November,” it said.


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