Broadcom Inc stock (NASDAQ:AVGO) absolutely plummeted today, currently down over 14% at the time of this writing. The reason? Broadcom announced a strange purchase seemingly out of nowhere that has left investors baffled.
Multiple Wall Street firms and analysts are calling Broadcom’s intent to acquire a growth-limited software company questionable at best. Broadcomm announced it had entered into an agreement to purchase CA Technologies for $18.9 billion USD.
Raymond James is one such firm and its analyst, Chris Caso covers technology and semiconductor sectors and he had this to say about the deal:
“To say the deal came out of left field is an understatement. We see no obvious business synergies between Broadcom’s semiconductor business and CA’s Software business. This deal, since it is so far afield from Broadcom’s core businesses, will likely cause significant confusion about the company’s strategy.”
That about sums up what most are saying, too. CA Technologies specializes in legacy software such as mainframe code. Highly specific and very low growth as the technology has been mature for many years.
What has that got to do with a hardware-focused, semiconductor company? Well.. almost nothing. No one has that answer yet and Broadcom senior management has yet to deliver a memo really explaining the rationale behind the move.
Broadcom, based in San Jose, CA with annual revenue of about $17 billion, is a microprocessor manufacturer that doesn’t have much to do with any software. What was the point of this move?
That is exactly the question investors would very much like to know and its why Broadcom’s day today marks the very worst in company history! The company’s market cap, the overall value of the company that is found by multiplying the number of company shares by the stock price of each share, dropped an immense $19 billion at its bottom today.
Perhaps this move could be partially explained by the firm’s failed hostile takeover bid of rival chip-maker, Qualcomm Inc. The deal was halted in March on national security grounds and this move to get CA Technologies could be seen as a rebound move, meant to deliver a swift acquisition that wouldn’t face much if any government regulation since the two companies are in totally different industries.
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