Broadcom agrees to buy CA for $19 billion

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(Bloomberg) -- Broadcom Inc., a semiconductor maker whose acquisitions have reshaped the chip industry, reached an agreement to purchase CA Technologies for about $19 billion, according to a person familiar with the process, branching out into software to diversify its business.

Broadcom offered $44.50 per share in a transaction valued at $18.9 billion, said the person, who asked not to be identified ahead of an announcement that will come later Wednesday. Broadcom and CA representatives didn’t immediately respond to requests for comment.

Under Chief Executive Officer Hock Tan, Broadcom has transformed itself through a string of acquisitions into one of the world’s largest chipmakers. Last year, Tan launched an ambitious attempt to grow even bigger -- through the purchase of rival mobile-chip maker Qualcomm Inc. That hostile takeover bid was blocked in March by the U.S government on national-security grounds. With a deal for CA, Broadcom is seeking to move into software used to manage business planning and other processes.

Shares of New York-based CA jumped 15 percent in extended trading on reports of the potential deal. Broadcom stock fell 5.5 percent. After the rejection of its Qualcomm bid, the San Jose, California-based company -- which relocated its headquarters to the U.S. from Singapore earlier this year -- had said it would probably avoid large purchases and concentrate on returning cash to shareholders in the form of stock buybacks and dividends.

Tan has built Broadcom by acquiring what he calls franchises. He looks at targets and identifies units and businesses inside those companies that he believes have a sustainable advantage, makes an acquisition, then spins off or shutters everything else. That has widened Broadcom’s profit margins by more than 20 percentage points since 2009 and earned him praise from the market. CA Technologies, incorporated as CA Inc., has even better profitability. Broadcom’s gross margin, or percentage of sales remaining after deducting the cost of production, was 67 percent in its most recent quarter. CA was at 86 percent.

Still, Broadcom is a provider of components for computers, smartphones and networking equipment. CA’s software and services don’t directly overlap in any way.

“Legacy software assets are highly tangential to Broadcom’s core data-center and smartphone chip businesses,” said Bloomberg Intelligence analyst Anand Srinivasan. “Integration here would likely be harder and customer bases have little overlap.”

But diverging so far in terms of products may help the transaction avoid the same level of regulatory scrutiny that undid Tan’s attempted Qualcomm purchase. Winning the go-ahead from governments has become an increasingly challenging in the chip industry, where the sensitive nature of the technology and its use in military equipment can lead lawmakers to block deals based on questions about national security.

CA makes software to manage IT operations, digital security and project management and for developing applications. The company traditionally made products that run on mainframes, but in recent years has entered the cloud computing market. The software maker is cutting 800 jobs, it said in a regulatory filing in May, putting it in line with the cost-reduction measures that Tan usually employs.

CA has projected sales of $4.25 billion to $4.29 billion this fiscal year. In the fourth fiscal quarter, about half of the company’s revenue still came from solutions for mainframes -- a type of computer that organizations have used to process vast amounts of data since the 1960s. That area contributes 90 percent of the company’s profit.

The acquisition agreement between Broadcom and CA was reported earlier Wednesday by the Wall Street Journal

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