Broadcom loses $19 billion in market value after bid to buy CA

(Reuters)- Chipmaker Broadcom's surprise offer to buy software company CA for $18,9 billion wiped that same amount off its market value on Thursday, with investors and analysts searching for a clear reason for the acquisition.

Broadcom, which has gained value by buying rivals over the past decade, reached an agreement on Wednesday to buy software company CA for $44,50 per share in cash, months after US President Donald Trump blocked the company's mega-merger with Qualcomm, a deal worth $117 billion.

While some analysts say the shift in sector focus could be another masterstroke by Broadcom Chief Executive Hock Tan, many have raised concerns about a deal that reduces Broadcom's growth from 5 percent to 3 percent.

"It's the most bizarre, unfocused, and non-strategic acquisition of the last decade," said Eric Schiffer, CEO of Patriarch Organization, a private equity firm.

Broadcom's famously ambitious CEO transformed the company from a fledgling chipmaker into a global powerhouse through a series of major deals. The executive is widely respected on Wall Street for his business acumen.

Susquehanna analyst Christopher Rolland said the foray into the software industry may have been motivated by a lack of viable options in the semiconductor industry and increased regulatory scrutiny.

CA's main business is selling software for large mainframe computers, in which it is second only to IBM.

But although this business generates a cash flow of $10 billion a year, its revenue growth has been steady, as more customers choose cloud computing services instead of their own data processing centers.

Following the agreement, the combined company would have approximately 71 percent of its revenue in semiconductors and 28 percent in software.

“We believe that many investors may not like it, at least initially, but this opens the door to a new angle on the story and further enhances Broadcom’s potential for return on investment,” said UBS analyst Timothy Arcuri.