CHIPMAKER Broadcom has agreed a surprise $18.9bn (around £14.3bn) deal to buy software outfit CA Technologies.
The deal comes just four months after Broadcom formally gave up its pursuit of Qualcomm, a deal that could have cost it as much as $160bn but was blocked by the US government on security grounds.
Broadcom's proposed acquisition of CA Technologies was announced on Wednesday. Broadcom CEO Hock Tan justified the deal on the grounds of creating "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," Tan said.
However, the two companies' products couldn't be more different, with Broadcom focused on semiconductors and CA still deriving more than half its revenues from mainframe software licence sales and support - not the "growing" segment of the infrastructure market, as Tan asserts. Its sales since 2014 are essentially flat, while net income is down.
In its last financial year to the end of March 2018, it posted revenues of $4.235bn and net income of $470m.
The deal, though, has raised questions over Tan's strategy following a string of ever-increasing deals in the semiconductor industry that has helped to make the company one of the biggest in the sector. Questions have been raised about the cost-saving synergies that might be generated, and the wisdom of paying a 20 per cent premium for an old-style software company entrenched in legacy software sales.
Broadcom chief financial officer Tom Krause suggested that Broadcom would apply "the model that's created so much value" to CA, adding: "Our model is to find value in the public markets where the existing investors don't see it. This is something that we had been thinking about for a while."
That, though, was CA's traditional approach to software M&A throughout the 1980s and 1990s - a strategy that was brought to a juddering halt by a combination of the recession of 2000, the technology shift away from mainframe computing and an accounting scandal.
That scandal saw its chief financial officer, Sanjay Kumar, end up serving 10 years in prison, only being released in January 2017. µ
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