Chipmaker Broadcom inks $19bln deal to buy software company CA

SAN FRANCISCO: Broadcom Inc announced a $18.9 billion deal to buy U.S. business software company CA Inc on Wednesday, venturing far beyond its realm of semiconductors and testing investors´ confidence in its Chief Executive Hock Tan´s dealmaking credentials.

The CA deal, outlined in a joint statement from the companies, comes just four months after U.S. President Donald Trump blocked Broadcom´s $117 billion hostile bid for semiconductor peer Qualcomm Inc, arguing it posed a threat to U.S. 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 United States, 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.

Dealmaking has been key to Broadcom´s expansion, as it grew from a 4 percent share of the chip market in 2013 to a 30 percent share this year, thanks to acquisitions spearheaded by Tan with backing from private equity firm Silver Lake.

Tan´s selection of CA as Broadcom´s next acquisition target, however, took Wall Street by surprise, and drove Broadcom shares down 7 percent in after-hours trading.

Investors and analysts scrambled to identify potential synergies, as the deal looked more like a financial investment rather than a combination of complementary businesses.

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

"Broadcom´s chips power smartphones, computers and networking equipment. CA, on the other hand, specializes in software for so-called mainframes, big servers that companies are gradually replacing with cloud computing, and has been seeking to expand in business software. The disparate corners of the technology market the two companies occupy mean that Broadcom will benefit primarily from CA´s recurring revenue, rather than operational synergies.