For those who came in late, Broadcom thought it would be a wizard wheeze to buy Computer Associates for $18.9 billion. However the cocaine nose jobs of Wall Street uttered many raspberries over the deal saying that CA and Broadcom were as compatable as Nick Farrell and an iPhone X - or words to that effect.
Investors drove the company’s shares down 19 percent to $197.50 - their worst day ever. CA rose 18.5 percent to $44.10.
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 three percent from five percent.
Eric Schiffer, chief executive of the Patriarch Organization, a Los Angeles-based private-equity firm said that it was the most bizarre, defocused, non-strategic acquisition of the last decade.
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.
Evercore brokerage 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.”
CA’s main business is selling software for big, mainframe computers, in which it is second only to IBM. But while that business generates cash flow of $10 billion a year, its revenue growth has been flat as more customers choose cloud services over old-fashioned hardware.