Broadcom Surprises Many With CA Technologies Acquisition

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How does that fit? Chipmaker shocks the markets with surprise acquisition bid for veteran software provider CA

Broadcom has shocked analysts and the markets with the surprise announcement that it is acquiring veteran enterprise software specialist CA Technologies.

The highly puzzling move would see the chipmaker acquire CA for $18.9 billion (£16.7bn) in cash, and the deal is being explained as building “one of the world’s leading infrastructure technology companies.”

It comes after Singapore-based Broadcom was rebuffed earlier this year by President Donald Trump after its attempted hostile takeover of US-based Qualcomm. The President blocked that deal on national security grounds.

Surprise deal

But now Broadcom has announced that “the companies have entered into a definitive agreement under which Broadcom has agreed to acquire CA, to build one of the world’s leading infrastructure technology companies.”

The deal has been approved by both board of directors and will see Broadcom pay CA shareholders $44.50 (£33.91) per share in cash, a premium of approximately 20 percent to the closing price of CA common stock on 11 July.

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

“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 added.

CA’s boss also thinks the deal is a good idea.

“We are excited to have reached this definitive agreement with Broadcom,” said CA CEO Mike Gregoire. “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 organisation that shares our values of innovation, collaboration and engineering excellence.”

However, it should be noted that the transaction is subject to customary closing conditions, which includes the approval of CA shareholders and antitrust approvals in the US, the EU and Japan.

However, it remains to be seen what the US president will make of the deal.

Strategic deal?

Despite the fine words from the management teams, there is little doubt that the acquisition has puzzled many, who struggle to see the strategic fit of Broadcom acquiring a veteran enterprise software provider.

Indeed, Reuters reported that Broadcom’s surprise bid to acquire CA wiped off $19bn (£16.8bn) in market value for Broadcom, as the market failed to see the rationale behind the deal.

CA of course used to be known as Computer Associates until 2010.

CA was founded in 1976 by the flamboyant Charles Wang and business partner Russell Artzt. Since then, CA has been one of the most acquisitive software companies in the history of the business. In the late 1980s CA became the first software company to top $1 billion (£885 million) in sales.

Under Wang’s leadership Computer Associates branched out into other areas including systems management, anti-virus, security, ID management, applications performance monitoring, devops etc.

Indeed, CA’s fierce acquisition strategy helped it become, at one stage, the second largest software provider in the United States.

But now CA’s main business is mainframe software, in which it is second only to IBM.

That business generates cash flow of $10 billion a year, but its revenue growth has been flat as customers increasingly opt for cloud services over old-fashioned hardware.

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Author: Tom Jowitt
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