Broadcom’s share price has dipped by nearly 14 per cent after it announced its plan to acquire CA Technologies.
The $19bn deal, announced yesterday, was a bolt from the blue. It was also a major change from Broadcom’s most recent quarterly earnings statement in which executives discussed extending the company’s lead in silicon, but didn’t mention acquisitions and according to the transcript did not actually utter the word “software”.
Investment analysts are confused and unconvinced by Broadcom’s plan to create a mission-critical infrastructure company spanning hardware and software. One labelled the deal “disturbing”.
Investors caned the company: Broadcom shares opened at US$244.39 on Wednesday, eased a dollar or so during trading and then plummeted to $201.27. They’re a few cents shy of $210 at the time of writing, but down about 13.8 per cent in a day - about $19bn of the company’s market capitalisation - for the company’s worst-ever trading day.
Investors are worried for a few reasons, one of which is that buying CA suggests Broadcom doesn’t think its core chip businesses have much growth left. Either that or the company is somehow constrained from getting into new silicon situations. Another is that CA’s growth is slow, making it a less-than-stellar addition.
Neither party has wavered from their desire to do the deal. Indeed, the rumour mill is already turning out suggestions Broadcom has other software buys in the pipeline. ®