Broadcom's Bid Is Puzzling, but Financially Reasonable
The deal to acquire CA Technologies doesn't have any clear synergies, but the premium Broadcom is paying is modest for a tech merger.
On July 11,
Following our preliminary take on the valuation of the combined firm, we are maintaining our $300 fair value estimate and narrow moat rating for Broadcom, as we believe the accretion stemming from the deal is offset by the premium paid. We will maintain our $35 fair value estimates for narrow moat CA. While the 27% premium is rather modest for a tech merger, the stock price for low-growth CA hasn't reached the $40 range or higher in the past 15 years, so shareholders might be wise to lock in profits. We do not anticipate any regulatory hurdles to approval, given the lack of synergies between the two firms, though it would not surprise us if the current geopolitical climate and trade tensions between the U.S. and China delayed the closing. Shares of Broadcom fell 6% during after-hours trading, as the market appears to disapprove of the deal, but we remain positive on the firm's powerhouse networking, RF filter, and connectivity portfolios.
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