It’s one thing to make a decision. It’s quite another to make other people — especially those with significant control over money — understand it.
That’s the predicament that Broadcom reportedly found itself in on Thursday (July 12), after the chip maker announced it would buy software company CA Technologies for $18.9 billion. CA, formerly known as Computer Associates, sells tools for mainframe computers. Broadcom makes chips for Wi-Fi, Bluetooth and GPS connectivity in smartphones, as well as components for wired networks and data storage.
The news sent CA’s stock price on a positive ride Wednesday (July 11), with a 15 percent jump to $42.00. The company’s stock price opened at $43.90 on Thursday and was holding steady as of noon Eastern time.
Broadcom has had a different experience since news broke of the acquisition. Its shares fell 2.8 percent in regular trading on Wednesday, and fell another 5.2 percent after hours. As of noon Eastern on Thursday, the company’s share price, which opened at $207.08, was also holding relatively steady.
Investors reportedly are confused about why Broadcom is pursuing this acquisition. “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, in a representative quote.
That confusion reportedly had led to downgrades of Broadcom’s stock by at least two analysts, with others cutting their price targets. “Brokerage B Riley was the most bearish with a price target cut of $63 to $245,” Reuters reported. A note from the brokerage Evercore described the acquisition as more about “financial engineering/PE … than due to any strategic rationale.”
Broadcom, meanwhile, has projected confidence in the acquisition.
“Software is a natural extension when you think about the ecosystem we’re playing in,” said Broadcom CFO Tom Krause in an interview, adding that the deal will help the company expand in a market for infrastructure technology that amounts to $200 billion, about triple the size of its current opportunity. Additionally, the deal doesn’t require approval in China, or pose antitrust issues in other countries. With no obstacles, the acquisition is expected to be completed by the end of the year.