Broadcom buys a mainframe company for $18.9 billion, loses $18.9 billion in value
Broadcom shares tumbled 19 percent on Thursday, decreasing its market cap by about $18.9 billion, as the company announced that it was purchasing mainframe enterprise company CA Technologies for $18.9 billion.
The acquirer works in the semiconductors industry which doesn’t necessarily translate to clear synergies with the largest competitor to IBM. A perception of senselessness led two brokerage houses to cut share price forecasts for both Broadcom and CA.
“It’s the most bizarre, defocused, non-strategic acquisition of the last decade,” one private equity manager told Reuters.
Another firm headlined its reactionary investment note “What the Hock?,” referring to Broadcom CEO Hock Tan. Under his leadership, Broadcom has acquired several firms with high integration value to the company under very tight negotiations. Tan did fail, though, to acquire its biggest rival, Qualcomm, thanks to an order from President Donald Trump.
Other investors viewed the acquisition as consistent with the Tan ethic of taking former industry-leading companies and cutting cost structures down to gain profit. Broadcom could be able to integrate software into its combined product portfolio and even enter into the server market.
If the all-cash deal closes, Broadcom’s revenue mix will diversify with about 71 percent coming from chips and 28 percent coming from software.