Two weeks after Hock Tan's company was reported to be in "advanced talks" to buy security tech firm Symantec, CNBC, Reuters and Bloomberg report that the talks have ended due to a failure to agree on price. Each reports that Broadcom backed away from an original, $28.25-per-share, offer price after performing due diligence. Bloomberg adds that talks "hit an impasse over the weekend after Broadcom sought to reduce its offer by more than $1.50 per share."
Symantec's stock is down 15.4% to $21.64 as of the time of this article, giving back all the gains it saw two weeks ago on reports of talks with Broadcom. Broadcom, which had sold off moderately on those reports, is up 1.6% to $290.05.
The fact that Broadcom apparently found some things about Symantec it didn't like after doing some research shouldn't come as a shock. As I noted after the first deal reports arrived, a Symantec acquisition would be more challenging in some ways than last year's $18.9 billion deal to buy CA Technologies, given that Symantec has clearly been seeing revenue declines and share losses in a slew of businesses, and that its enterprise security software business faces a lot more competition than CA's core mainframe software business.
Nonetheless, given that a buyout price of, say, $26.50 per share would still represent a healthy premium relative to where Symantec currently trades, it's possible that Symantec eventually returns to the negotiating table. This could happen either because Symantec's management and board choose on their own to resume buyout talks, or -- as was the case for programmable chip developer Altera after it initially rejected a buyout offer from Intel (INTC) in 2015 -- because investors pressure them to do so. Certainly, the performance of Symantec's stock in recent years might help convince some shareholders that it's in their interests for Symantec to accept a reduced Broadcom offer.
But in the event that Broadcom is walking away from Symantec for good, it might be only a matter of time before Broadcom pursues another major software transaction.
Not long after reports of Symantec talks arrived, CNBC reported that Broadcom has also considered buying middleware and analytics software firm Tibco, which was acquired by PE firm Vista Equity for $4.3 billion in 2014. It added that different teams of Broadcom advisors have been simultaneously working on deals for Symantec and Tibco because "Tan is determined to do a large acquisition this year."
And with Tan having said in the past that Broadcom wants to drive consolidation in the "infrastructure software" space the way that it previously did in the chip industry, there are also other possibilities. Since the CA deal was inked, there has been speculation that Broadcom could go after CA rival BMC Software, which was bought by private equity firm KKR for $8.5 billion in 2018. Micro Focus International (MCFUF) , a British peer of CA's that bought most of HP Enterprise's (HPE) software operations in 2016, and whose stock is trading well below its 2017 highs, is another potential target.
It's also possible that Broadcom chooses to pursue another chip M&A transaction, particularly if easing trade tensions give the company confidence that Chinese regulators won't thwart a bid. On the company's June 13 earnings call (three weeks before the Symantec reports arrived), Tan asserted that Broadcom remains "very active in assessing" potential chip deals.
One thing is for certain: Broadcom should have little trouble financing another large acquisition in the event that it strikes one. Corporate debt markets remain quite favorable, and Broadcom's current net debt balance of $29 billion isn't excessive for a company that has a $115 billion market cap, is expected to produce over $9 billion in free cash flow in its current fiscal year and has a well-earned reputation for making debt-financed acquisitions pay off.
Broadcom has long acted like a PE firm when it comes to striking acquisitions and making them work. And for now, though multiples have gotten stretched in some areas, there are still a lot of conceivable targets for a firm taking a PE-like approach to pursuing software and chip deals.