(Reuters) - Chipmaker Broadcom Inc’s surprise bid to buy software company CA Inc for $18.9 billion wiped off the same amount from its market value on Thursday, with investors and analysts struggling to find a clear reason for the deal.
Citing an acquisition with no potential synergies, investors drove the company’s shares down 19 percent to $197.50 - their worst day ever. CA rose 18.5 percent to $44.10.
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 $44.50 per share in cash, months after President Donald Trump blocked its $117 billion mega-merger with Qualcomm Inc.
While some analysts said the shift in sectoral focus might prove another masterstroke by Broadcom Chief Executive Officer Hock Tan, many raised concerns about a deal that lowers Broadcom’s top line growth to 3 percent from 5 percent.
“It’s the most bizarre, defocused, non-strategic acquisition of the last decade,” said Eric Schiffer, chief executive of the Patriarch Organization, a Los Angeles-based private-equity firm.
At least two analysts downgraded the stock, while two other analysts cut their price targets. Brokerage B Riley was the most bearish with a price target cut of $63 to $245.
“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
