Business Corpus: Broadcom To Buy Enterprise Software Firm CA For $18.9 BillionChipmaker Broadcom announced late Wednesday that it plans to buy enterprise software firm CA Technologies for $18.9 billion in cash to create a leading infrastructure technology company. The post Broadcom To Buy Enterprise Software Firm CA For $18.9 Billion appeared first on Investor's Business Daily.

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Chipmaker Broadcom (AVGO) announced late Wednesday that it plans to buy enterprise software firm CA Technologies (CA) for $18.9 billion in cash to create a leading infrastructure technology company.

CA shares jumped over 16% to about 43.25 in after-hours trading on the stock market today after the Wall Street Journal reported a possible deal. Broadcom stock sank nearly 6% to 229 on the news.

Under the terms of the agreement, CA's shareholders will receive $44.50 per share in cash. That represents a premium of about 20% to CA's closing price on Wednesday.

The deal has been approved by the boards of directors of both companies. The transaction is subject to customary closing conditions, including the approval of CA shareholders and antitrust approvals in the U.S., European Union and Japan. It is expected to close in the fourth quarter.

"This transaction represents an important building block as we create one of the world's leading infrastructure technology companies," Broadcom Chief Executive Hock Tan said in a news release. "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."

He added, "We intend to continue to strengthen these franchises to meet the growing demand for infrastructure software solutions."

Change In Acquisition Strategy

The purchase marks a major change in Broadcom's acquisition strategy. It usually buys other semiconductor companies. CA makes information technology management software. Broadcom is a leading semiconductor device supplier to the wired, wireless, enterprise storage, and industrial markets.

RBC Capital Markets analyst Amit Daryanani said the deal is a head-scratcher.

"While we understand the logic behind the attractive free-cash-flow stream at CA, investors will wrestle (with the) strategic rationale," he said in a note to clients.

Big questions that need to be answered by Broadcom include: Why is it moving into the software space and how does this business mesh with its core operations?

Investors also will want to know how broad the company plans to move beyond semiconductors in future mergers and acquisitions, Daryanani said.

The acquisition comes just months after President Donald Trump blocked Broadcom's $117 billion purchase of wireless-chip maker Qualcomm (QCOM) on national security grounds. Broadcom recently moved its headquarters from Singapore to San Jose, Calif.

Broadcom said the CA acquisition will be immediately accretive to its adjusted earnings per share. It also will help Broadcom drive its long-term adjusted profit margins above 55%.

It will fund the deal with $18 billion in new debt financing plus cash on hand. Broadcom expects to maintain an investment grade rating, given its strong cash flow generation and intention to rapidly de-leverage, the company said.

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