Monday, 16 July 2018 00:56

Broadcom seeks to acquire CA Technologies for US$18.9 billion

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Semiconductor and hardware company Broadcom wants to buy out enterprise software maker CA Technologies for US$18.9 billion, and while some synergies are there, some online seem surprised.

Promising to build "one of the world's leading infrastructure technology companies", Broadcom has been looking for a dancing partner to acquire even before its ultimately failed bid to buy out Qualcomm, the maker of 4G and other chips used in many of the world's top smarthphones, and that partner looks set to be CA Technologies

With Broadcom working on processors and semiconductor devices, the fit with an enterprise software company (CA Tech) that helps other businesses conquer the complexity of modern software and turning their own businesses into modern software factories hasn't been immediately apparent, causing Broadcom's stock price to fall the day after the announcement was made.

Naturally, Broadcom has promoted the move as continuing its "focus on acquiring established mission critical technology businesses" while "providing Broadcom with significant recurring revenue", with the deal expected to close "in the fourth calendar quarter of 2018".

Under the terms of the agreement, which has been approved by the boards of directors of both companies, we're told that "CA's shareholders will receive US$44.50 per share in cash. This represents a premium of approximately 20% to the closing price of CA common stock on 11 July, the last trading day prior to the transaction announcement, and a premium of approximately 23% to CA's volume-weighted average price for the last 30 trading days. The all-cash transaction represents an equity value of approximately US$18.9 billion, and an enterprise value of approximately US$18.4 billion."

Hock Tan, president and chief executive of Broadcom, said, "This transaction represents an important building block as we create one of the world's leading infrastructure technology companies.

"With its sizeable installed base of customers, CA 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. We intend to continue to strengthen these franchises to meet the growing demand for infrastructure software solutions."

Mike Gregoire, CA Technologies chief executive, said: "We are excited to have reached this definitive agreement with Broadcom.

"This combination aligns our 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 organisation that shares our values of innovation, collaboration and engineering excellence. We look forward to completing the transaction and ensuring a smooth transition."

As a global leader in mainframe and enterprise software, CA says its solutions "help organisations of all sizes develop, manage, and secure complex IT environments that increase productivity and enhance competitiveness", and that it "leverages its learnings and development expertise across its Mainframe and Enterprise Solutions businesses, resulting in cross enterprise, multi-platform support for customers".

"The majority of CA's largest customers transact with CA across both its Mainframe and Enterprise Solutions portfolios. CA benefits from predictable and recurring revenues with the average duration of bookings exceeding three years. CA operates across 40 countries and currently holds more than 1,500 patents worldwide, with more than 950 patents pending."

Broadcom said it "intends to fund the transaction with cash on hand and US$18.0 billion in new, fully-committed debt financing. Broadcom expects to maintain an investment grade rating, given its strong cash flow generation and intention to rapidly de-leverage".

"The transaction is subject to customary closing conditions, including the approval of CA shareholders and antitrust approvals in the US, the EU and Japan."

Probably the biggest question is what CA Technologies will get from Broadcom in addition to simply being bought out at a premium price, and whether it will all be worth it following what will presumably be a realignment of staff, but we'll just have to wait and see.

It would seem the deal can definitely be made to work, it's just not as natural sounding a fit as it might otherwise be, but hardware and software are indispensable to each other, so seeing how this acquisition unfolds and how the new combined company and its customers will benefit will be very interesting to see, and we wish all concerned good fortune in having it all unfold in a way that exceeds everyone's expectations.

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Alex Zaharov-Reutt

One of Australia’s best-known technology journalists and consumer tech experts, Alex has appeared in his capacity as technology expert on all of Australia’s free-to-air and pay TV networks on all the major news and current affairs programs, on commercial and public radio, and technology, lifestyle and reality TV shows. Visit Alex at Twitter here.

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