One of the most successful partnerships in technology M&A has ended.
Ken Hao, the Silver Lake managing partner who’s been instrumental in Broadcom Inc.’s past acquisitions, stepped down from the chipmaker’s board on the day it agreed to buy software maker CA Technologies. His resignation marks the departure of one of Broadcom Chief Executive Officer Hock Tan’s right-hand men in the acquisition spree that’s minted his reputation as a dealmaker the market (usually) loves.
The $19 billion deal for CA Tech, announced Wednesday, is a shift from Tan’s strategy to buy up rival semiconductor makers -- a master plan he dreamed up with Hao. It’s a new direction that threatens to bring Broadcom into direct competition with some of the companies that make up Silver Lake’s technology-focused portfolio.
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By asking investors to look beyond its usual acquisition strategy and trust that Broadcom can instead squeeze value from unloved assets, Tan is taking a leaf out of the classic private equity playbook. Because of the possible overlap with Silver Lake’s other investments, he’ll have to execute it without his former in-house expert.
Hao is stepping down to “proactively avoid any potential conflicts of interest that could arise” from Broadcom’s $19 billion takeover of CA, according to a filing Thursday. The decision was not due to any disagreement between him and the company, the filing said.
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Silver Lake plans to keep its Broadcom holdings even as it gives up its board position, according to a person familiar with the matter, who asked not to be identified because the plans are private. Silver Lake holds about 2 million shares of Broadcom, or a 0.47 percent stake, according to data compiled by Bloomberg. The firm has also held the company’s convertible debt.
So far, Wall Street is unimpressed with the CA deal, which has left analysts befuddled about the rationale -- the companies’ operations don’t overlap -- and sent Broadcom shares down more than 15 percent Thursday.
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Broadcom provides components for computers, smartphones and networking equipment. CA makes software to manage IT operations, digital security and project management and for developing applications.
CA directly competes with Silver Lake portfolio company Dell Technologies Inc. and could have some overlap with Symantec Corp., where Hao is on the board. A representative for Silver Lake declined to comment.
Hao was an influential player in Broadcom’s scuttled attempt to acquire Qualcomm Inc. for $117 billion, making the initial approach on behalf of Tan and spurring a hostile takeover saga that could’ve led to the biggest deal in technology. That dream ended abruptly when the U.S. government blocked the transaction in March.
Tan also has the Silver Lake partner to thank for his current job: Hao recruited Tan to the company now known as Broadcom in 2006.
Seven years later, over Hong Kong-style dim sum, Hao pitched Tan on using his company to start rolling up businesses in the fragmented semiconductor industry. Avago, as the company was then named, agreed to acquire LSI Corp. for $6.6 billion in 2013, including $1 billion of convertible debt from Silver Lake. Hao acted as emissary for that deal, as well.
In 2016, the business acquired Broadcom for a then-record setting price of $37 billion. Silver Lake didn’t participate financially in that deal.
Updates with details of potential competition from third paragraph.
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