Now that the dust has settled and it's clear that Broadcom only wants mainframe business, why did they overpay 20% to buy the entire company?
By the numbers, it will take over 20 years for Broadcom to break even on this.
8 replies (most recent on top)
Any sell-off is speculation. A shutdown is just stupid, it still generates plenty of profit for someone even if it's not Broadcom.
The real signal will be if another acquisition is quickly announced after this one. There is a lot of speculation that this is the first in a rapid string of acquisitions for Broadcom, if they announce another before the end of the calendar year and it's complimentary to CA's ES products, then they are serious about being an enterprise software player.
If Broadcom stock rises back to $250 and beyond as a result of gutting and milking CA then I don’t think the $20 billion they spent matters.
Broadcom created a growth beast that needs to continually be fed. They tried to feed it Qualcomm but the deal failed so now they’re going to feed it CA’s mainframe business.
Feed the beast.
It may take a year to sell off the enterprise products, but there will be buyers. Assume that that brings in $2-3B total (not unreasonable, I doubt it will get $20B, that’s too high a multiple).
What will be left is a $2B revenue mainframe BU with 1000 people max, more than half based in low cost countries. Milk the business.
From a financial engineering perspective this is a classic play.
Quid Pro Quo... it's what board members/inside investors do... it's business... and s---er taxpayers, retail investors, customers, and employees are on the "hook" for... AIN'T CAPITALISM WONDERFUL??
Broadcom believe the whole is worth less than the sum of its parts. It’s classic 1980’s corporate raiding. How much would a company like OKTA pay for the authentication products, or CyberArk pay for Exceedium, Qualys for Veracode. I think the enterprise software parts are worth 6-10 billion. If by chance they could sell the parts for 10 billion, then they paid 8 billion for 2 billion in revenue, 1 billion in current profit with a path to 1.5 billion through cuts and price increases.
The parts are worth more than the whole because BikeBoy never spent on product integration. He hoped riding around in CA spandex would sell more PAM and Automic.
Even it will take sometime to sell profitable ES business. It is not going to happen in a day or two.
@UIrtq9k Clearly you are noob. A guy like Octane wouldn't buy if it doesn't breakeven or sustain.
They ll break even in less than 5 years : with all cuts , dividend cash and mainframe profits (by raising prices) .
Is it official that whole ES business will be shutdown or sold or just the speculation?