Coverage: Broadcom to buy CA Technologies for $18.9 billion

Broadcom and CA Technologies on Wednesday announced that Broadcom has agreed to acquire the enterprise technology company for $18.9 billion in cash.

Chloe Aiello of CNBC.com had the news:

The deal values CA stock at about $44.50 per share, or a premium of about 20 percent to the closing price of CA common stock on July 11.

The acquisition represents a strategic win for Broadcom, furthering its mission to acquire “mission critical technology businesses,” following its failed takeover bid for rival Qualcomm. CA Technologies, which manufactures cloud-based and traditional enterprise software, could help diversify Broadcom, should it gain antitrust approvals in the U.S., the E.U. and Japan. The boards of both companies have already approved the deal.

Shares of CA Technologies soared more than 16 percent in extended trading, after an earlier report by the Wall Street Journal that Broadcom was close to acquiring the software company.

Shares of Broadcom edged down more than 5 percent, pushing the stock down to about $299 per share. Broadcom is down more than 5 percent year-to-date, amid a tumultuous year for the chipmaker’s stock value.

Frederic Lardinois of TechCrunch reported that Broadcom is trying to diversify beyond chip manufacturing:

It’s a bit of a surprise to see chip manufacturer Broadcom  acquire a major software and services company. “This transaction represents an important building block as we create one of the world’s leading infrastructure technology companies,” Broadcom CEO and president Hock Tan explains in today’s announcement. “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.”

This comment doesn’t exactly explain the rationale behind today’s acquisition, but Broadcom is clearly trying to diversify its offerings. Earlier this year, the company walked away from its proposed hostile takeover of Qualcomm after the Trump administration blocked it. At the time, Broadcom was willing to pay $117 billion for Qualcomm, which would have greatly extended the company’s semiconductor business. Today’s move sees Broadcom enter a completely new business.

The company expects the acquisition to close in the fourth quarter of 2018. It’s unlikely that Broadcom will face any major headwind from Washington this time around.

Becky Peterson of Business Insider reported that Broadcom’s deal to acquire Qualcomm had been blocked:

News of this deal comes just four months after President Trump blocked Broadcom from acquiring Qualcomm in a $103 billion hostile takeover on the grounds on national security.

Broadcom, which was based in Singapore, has made moves in recent months to increase its presence in the US. The company moved to officially register itself as an American corporation in April to sate regulators ahead of the ultimately-blocked Qualcomm deal.

Broadcom designs and produces the semiconductors used in many smartphones, database networks and wifi networks. CA Technologies sells the software behind database mainframes, cloud computing systems and virtual machine environments.

CA Technologies stock was up over 16% in after-hours trading immediately following the announcement of the deal. Shares of Broadcom were down over 5.5%.