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Broadcom Reportedly Gives Up on Symantec Buyout: Key Insights

Zacks Equity Research

Broadcom AVGO has ceded its intention to acquire Symantec SYMC as the to-be-acquired company maintained its stance on $28 per share deal, per a CNBC report citing “people familiar with the matter.”

Previously reports stated that Broadcom was willing to make a deal of $28.25 per share for Symantec. However, later the chipmaker wanted the acquisition to close below $28, which wasn’t acceptable to Symantec.

According to rumors, the semiconductor behemoth had secured funding and identified cost savings for the proposed buyout but has now been reportedly halted. Initial reports had suggested that Broadcom has to spare out more than $22 billion including debt for Symantec acquisition.

Reportedly, Broadcom is walking away as it reckoned a bid of $28 per share “expensive” on a price per earnings basis.

Following the news, shares of Broadcom were up 3.2% in the intraday trading marking the day’s high of $294.49, eventually closing at $288.34, on Jul 16. Notably, Broadcom stock has returned 47.1% in the past year, outperforming the industry’s rally of 34.3%.


 

Meanwhile, the news didn’t go down well with Symantec’s investors, the company’s stock plunged 10.7%, closing at $22.84.

Key Takeaways: Is Tibco in Consideration?

Broadcom has been aggressively pursuing strategic acquisitions to diversify end markets beyond semiconductors.

The company is looking to strengthen presence in the infrastructure software vertical particularly. In this regard, CA buyout for approximately $18.9 billion remains extremely significant.

This strategy is enabling the company to improve the top line. In second-quarter fiscal 2019 results, the company’s Infrastructure software revenues (representing 26% of total revenues) skyrocketed 216% year over year to roughly $1.413 billion.

Meanwhile, Semiconductor solutions’ revenues (74%) totaled $4.088 billion, down 10% from the year-ago quarter. This can be attributed to overall macroeconomic softness in semiconductor domain. Markedly, on account of Huawei headwinds, Broadcom has slashed prediction for semiconductor sales this year by $2 billion.

With the company giving up on Symantec acquisition, Broadcom’s rumored deal to buy Tibco Software, an infrastructure software company, might gain momentum and eventually materialize.

Palo Alto-based Tibco Software is a big data software platform that was purchased by Vista Equity Partners, a private equity firm, for $4.3 billion. The company manages information, decisions, processes and applications for more than 10,000 customers worldwide. According to Crunchbase data, Tibco has completed almost 25 acquisitions to strengthen infrastructure software portfolio.

We believe stakes on Tibco to be high as Broadcom looks for inorganic expansion in software market. Moreover, Broadcom won’t have to incur massive expenses for Tibco as it would have been the case for Symantec, which bodes well for its bottom line.

Symantec has been plagued with frequent changes in management and stiff competition for quite some time now. By forgoing the acquisition, the cybersecurity company is likely to have missed out on a “good deal.” However, an increase in the global IT security spending and strength in endpoint security market are tailwinds.

Zacks Rank & Key Picks

Currently, both Broadcom and Symantec, carry a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader technology sector are Alteryx AYX and Rosetta Stone RST, both flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Alteryx and Rosetta Stone is currently pegged at 13.7% and 12.5%, respectively.

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