Four months after President Donald Trump thwarted a $117 billion bid from chipmaker Broadcom (AVGO) to acquire rival Qualcomm (QCOM) , Broadcom's new plan to buy software company CA Inc. (CA) won't raise the same hackles, one analyst says.
"We do not expect antitrust issues to delay the [AVGO/CA] transaction," Deal Analytics, a research service following mergers and acquisitions, wrote in a note Thursday.
Broadcom announced plans late Wednesday to buy CA for $18.9 billion cash. Under the terms of an agreement approved by both companies' boards, CA shareholders will receive $44.50 per share in cash -- a 20% premium over the stock's closing price prior to the deal's announcement.
CA shares jumped some 18% to $43.92 as of midday Thursday, while AVGO fell roughly 15% to $207.
Deal Analytics wrote in its review of the merger that the U.S. Federal Trade Commission and Justice Department seem unlikely to delay the AVGO/CA deal because the companies' current businesses don't overlap. After all, Broadcom does hardware and CA handles software.
"The acquisition of CA Technologies strategically diversifies Broadcom and expands their presence in North American markets with enterprise software, application development and cloud management of storage solutions," the note said.
Deal Analytics predicted that at most, government antitrust regulators reviewing Broadcom and CA's merger application might make the companies submit "a refiling or possibly a limited second request for informational purposes only."
By contrast, Broadcom gave up on a plan to take over fellow chipmaker Qualcomm after Trump criticized the proposed merger and the U.S. government's Committee on Foreign Investment in the United States (or "CFIUS") objected to the deal. CFIUS ordered a full security review of the AVGO/QCOM merger amid concerns that the deal would threaten U.S. national security by giving Broadcom an edge in emerging 5G technology. (Broadcom was headquartered in Singapore at the time, but has subsequently relocated its base to California.)
Broadcom CEO Hock Tan said the CA purchase would give his company a foothold in selling subscriptions for corporate software.
"This transaction represents an important building block as we create one of the world's leading infrastructure technology companies," Tan said. "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. We intend to continue to strengthen these franchises to meet the growing demand for infrastructure software solutions."
Sanford Bernstein & Associates analyst Stacy Rasgon wrote on Thursday that "on a purely financial stand-alone basis, we could argue that CA has the typical characteristics of a franchise as AVGO defines it ... an extremely profitable, sticky mainframe business coexisting with an enterprise segment that appears ripe for rationalization.
The AVGO/CA deal is expected to be funded almost fully with $18 billion in debt financing, although Broadcom expects its strong cash flow to offset any strain to the company's investment-grade credit rating.