Menu
CA Technologies snapped up by Broadcom for billions

CA Technologies snapped up by Broadcom for billions

Wall Street analysts immediately skeptical

Broadcom plans to acquire US-based business software company CA Technologies in a US$19 billion deal aimed at diversifying the tech giant beyond semi-conductors, but Wall Street analysts were immediately skeptical.

The deal comes just four months after US President Donald Trump blocked the vendor's US$117 billion hostile bid for semi-conductor peer Qualcomm because it posed a threat to US national security and gave an edge to Chinese companies looking to build next-generation wireless networks.

Since then, Broadcom has redomiciled from Singapore to the US, placing it formally outside the purview of the Committee on Foreign Investment in the United States (CFIUS), the government panel that reviews deals for potential national security risks.

Broadcom has toyed with buying non-semiconductor companies before, as with its US$5.5 billion acquisition of wireless networking gear company Brocade.

Broadcom shares fell US$13.94 or 5.52 per cent in after-hours trading to US$229.50 after the Wall Street Journal first reported the deal with CA.

The two companies said it would value CA at US$44.50 per share - CA shares ended trading on Wednesday at US$37.21, and rose 15.6 per cent after hours.

CA, formerly known as Computer Associates, has its roots in providing software for mainframe computers used by banks and other large institutions - it has been shifting much of its business to the cloud to become more competitive with corporate customers.

The boards of both firms approved the deal agreement, the companies said. CA's largest shareholders, Careal Property Group AG and affiliates, which own 25 per cent of the outstanding shares of CA, have agreed to vote for the deal, according to the announcement.

Broadcom said it would finance the US$18.9 billion purchase price with cash on hand and US$18 billion in debt financing that it said was "fully committed."

But analysts questioned the deal. Broadcom CEO Hock Tan has had success in chip deals by generating efficiencies from merging operations of acquired companies.

Analyst Kinngai Chan of Summit Insights Group said it was unclear how Tan would accomplish something similar with CA, which is a software company that has been working to shift to the subscription billing financial model that has become common in that industry.

"We believe this planned acquisition definitely will create some uneasiness amongst its current investor base," Chan said of Broadcom.

In a note to clients, RBC Capital Markets analyst Amit Daryanani said there was "lots of explanation needed" and that "investors will wrestle and try to gain comfort in (the) strategic rationale and its impact to capital allocation."

Broadcom under Tan has been on an acquisition spree as some of its major customers such as Apple and Samsung Electronics look to consolidate supplier relationships and slash costs.

In March, Trump signed an order to halt what would have been the biggest-ever technology deal between Broadcom and Qualcomm on concerns it would erode the US' lead in mobile technology and pave the way for China to gain the upper hand.

"This transaction represents an important building block as we create one of the world's leading infrastructure technology companies," Tan said in the announcement.

"We intend to continue to strengthen (CA's software) franchises to meet the growing demand for infrastructure software solutions."

CA CEO Mike Gregoire has been looking for a deal for some time. Talks last year to merge with private equity-owned peer BMC Software fell through.

Bank of America and Deutsche Bank advised Broadcom, and Qatalyst Partners advised CA.

(Reporting by Greg Roumeliotis in New York, Stephen Nellis in San Francisco and Arjun Panchadar in Bangalore; Editing by Lisa Shumaker and Cynthia Osterman)


Follow Us

Join the newsletter!

Or

Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.

Tags softwarebroadcomCA Technologies

Featured

Slideshows

The making of an MSSP: a blueprint for growth in NZ

The making of an MSSP: a blueprint for growth in NZ

Partners are actively building out security practices and services to match, yet remain challenged by a lack of guidance in the market. This exclusive Reseller News Roundtable - in association with Sophos - assessed the making of an MSSP, outlining the blueprint for growth and how partners can differentiate in New Zealand.

The making of an MSSP: a blueprint for growth in NZ
Reseller News Platinum Club celebrates leading partners in 2018

Reseller News Platinum Club celebrates leading partners in 2018

The leading players of the New Zealand channel came together to celebrate a year of achievement at the inaugural Reseller News Platinum Club lunch in Auckland. Following the Reseller News Innovation Awards, Platinum Club provides a platform to showcase the top performing partners and start-ups of the past 12 months, with more than ​​50 organisations in the spotlight.​​​

Reseller News Platinum Club celebrates leading partners in 2018
Meet the top performing HP partners in NZ

Meet the top performing HP partners in NZ

HP has honoured its leading partners in New Zealand during 2018, following 12 months of growth through the local channel. Unveiled during the fourth running of the ceremony in Auckland, the awards recognise and celebrate excellence, growth, consistency and engagement of standout Kiwi partners.

Meet the top performing HP partners in NZ
Show Comments