Chipmaker Broadcom’s surprise bid to buy software company CA for $18.9 billion wiped off the same amount from its market value on Thursday, with investors and analysts struggling to find a clear reason for the deal.
Citing an acquisition with no potential synergies, investors drove the company’s shares down 19 percent, to $197.50 Thursday morning —- their worst day ever. CA rose 18.5 percent, to $44.10.
Broadcom, which has mushroomed in value by buying out rivals in the past decade’s surge in mobile phone production, agreed on Wednesday to buy mainframe software company CA for $44.50 per share in cash, months after President Trump blocked its $117 billion megamerger with Qualcomm.
While some analysts said the shift in sectoral focus might prove another masterstroke by Broadcom Chief Executive Officer Hock Tan, many raised concerns about a deal that lowers Broadcom’s top line growth to 3 percent from 5 percent.
“It’s the most bizarre, defocused, non-strategic acquisition of the last decade,” said Eric Schiffer, chief executive of the Patriarch Organization, a Los Angeles-based private-equity firm.
At least two analysts downgraded the stock, while two other analysts cut their price targets. Brokerage B Riley was the most bearish with a price target cut of $63, to $245.
“What the Hock?” analysts from brokerage Evercore wrote in a note. “We think investors will likely be disappointed at this deal, which seems more financial engineering/PE driven than due to any strategic rationale.”
Broadcom’s famously ambitious chief executive has built the company from a fledgling chipmaker to a global powerhouse through a series of big deals, and is widely respected by Wall Street for his business acumen.
CA’s main business is selling software for big, mainframe computers, in which it is second only to IBM.
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