Broadcom Inc has declared on Wednesday that it will buy CA, the American software company, for $18.9 bl. Broadcom Inc is a known name in the semiconductor business sectors. The timing of the deal is very crucial as the U. S President Donald Trump barred Broadcom Inc from bidding for Qualcomm Inc four months ago. According to the Trump government, the $117 bl bid was a threat for the national security of U. S.
Since then, the chipmaking company Broadcom Inc has redomiciled to America from Singapore. Thus, the CFIUS or Committee on Foreign Investment in the United States cannot influence the deals that the company makes. CFIUS is responsible for reviewing the deals that can cause threats to the national security.
Broadcom has come a long way since it started its business in 2013 with a 4% market share of the chip market. Now the company has 30% share and it achieved the growth through making deals.
Even though this a great deal, Wall Street remained surprised as the share of Broadcom Inc went down by 7% in the after-hours of trading. Many analysts find the deal to be a financial investment instead of a flattering business strategy.
Many investors think that the primary motive of Broadcom is to gain profit from the recurring revenue of CA instead of gaining profit from the operational collaborations.
The payment that Broadcom will make for CA is $44.50 per share. The deal will take place in $18 by cash and in the new debt financing. As per the announcement made by Broadcom, the shareholders and affiliates of CA have agreed with the conditions of the deal and they will vote for it.
While Broadcom creates chips for computers, smartphones, and equipment for networking, CA specializes in software that is popularly known as mainframes. However, as cloud computing is becoming quintessential, companies that offer huge servers are looking for options to expand their businesses. On the other hand, Broadcom has also purchased Brocade Communications Systems, the networking gear company, last year against $5.5 bl.
Although Trump ceased the deal that was going to take place between Qualcomm and Broadcom in March 2018 to stop China from gaining an upper hand, the new deal of Broadcom and CA proves that the company will progress in its own way.