Semiconductor manufacturer Broadcom Inc. is buying New York City-based software firm CA Technologies for $18.9 billion (all figures USD), in a bid to create what the former calls “one of the world’s leading infrastructure technology companies.”
The news was announced Wednesday after first being reported in the Wall Street Journal.
The acquisition has been approved by the boards of directors of both companies and will see CA Technologies shareholders receiving $44.50 per share in cash – a 20 per cent premium on CA’s share price on July 11 prior to the announcement.
In a statement, Broadcom president and CEO Hock Tan called the acquisition “an important building block as we create one of the world’s leading infrastructure technology companies.”
“With its sizeable installed base of customers, CA Technologies 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,” Tan said. “We intend to continue to strengthen these franchises to meet the growing demand for infrastructure software solutions.”
CA CEO Mike Gregoire, meanwhile, said the company was “excited” to merge with Broadcom, and that combining the two companies would align “[CA’s] 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 organization that shares our values of innovation, collaboration and engineering excellence,” Gregoire said in the July 11 statement. “We look forward to completing the transaction and ensuring a smooth transition.”
As noted by the Journal, Bloomberg, TechCrunch, and the Register, the deal actually makes little sense, with the Journal euphemistically saying it “would take the chip-making giant in a new direction,” TechCrunch calling it a “bit of a surprise,” and the Register straight-up calling it the “Weirdest. Acquisition. Ever.”
In an editorial for Bloomberg, reporters Shira Ovide and Brooke Sutherland called the deal “a huge blow to Broadcom’s reputation as a serial and savvy corporate acquirer” – and this after its reputation was already famously battered by the U.S. government halting Broadcom’s attempted takeover of rival Qualcomm in March.
“How Broadcom can help CA’s transformation is not at all obvious,” they write. “What CA gives Broadcom is likewise not at all obvious. There are no logical opportunities for synergies: The companies don’t share supply chains or customers. The only real benefit for Broadcom is that the deal is so far out of its wheelhouse that regulators aren’t likely to give it any trouble.”
Broadcom’s shareholders seem equally confused, they note: After the acquisition was reported Wednesday evening, the company’s stock price fell from $244.50 to $230 per share.
In its release, Broadcom said the transaction is expected to boost its Broadcom’s long-term earnings by more than 55 per cent, and emphasized the benefit of CA’s “predictable and recurring revenues,” with the average customer adopting its infrastructure for more than three years.