(Reuters) - Broadcom Inc’s (AVGO.O) surprise bid to buy software company CA Inc (CA.O) knocked $11 billion off the value of the chipmaker in trading before the bell on Wall Street on Thursday, with analysts struggling to find a clear rationale behind the deal.
Broadcom, which has mushroomed in value by buying out rivals in the past decade’s surge in mobile phone production, agreed on Wednesday to buy mainframe software company CA for $18.9 billion in cash, months after President Donald Trump blocked its $117 billion mega-merger with Qualcomm Inc (QCOM.O).
While some analysts said the shift in sectoral focus might prove another masterstroke by Broadcom Chief Executive Hock Tan, the knee-jerk reaction of investors drove Broadcom stock 10 percent lower in premarket trading. CA rose 18.5 percent to $44.10.
“What the Hock?” analysts from brokerage Evercore wrote in a note. “We think investors will likely be disappointed at this deal, which seems more financial engineering/PE driven than due to any strategic rationale.”
Broadcom’s famously ambitious chief executive has built the company from a fledgling chipmaker to a global powerhouse through a series a ambitious deals, and is widely respected by Wall Street for his business acumen.
Susquehanna analyst Christopher Rollan said the foray into the software industry may have been driven by a lack of viable options in the semiconductor industry and increased regulatory scrutiny.
CA’s main business is selling software for big, mainframe computers, in which it is second only to IBM (IBM.N).
But
