The Strategist

Why does Broadcom need Symantec?

07/05/2019 - 10:26

Broadcom processor manufacturer is interested in buying cybersecurity software developer Symantec, reports Bloomberg, citing sources familiar with the negotiations.

According to the publication’s informants, the deal has already been concluded, but will be officially announced later. The cost of the transaction is more than $ 15 billion, which is $ 6 billion less than the price of Symantec two years ago.

Symantec is one of the leading firms in the computer security market. More than 350 thousand organizations and 50 million people around the world use its products and services. Symantec is currently under pressure due to increasing competition. In addition, US regulators are investigating accounting violations against the company.

Over the past years, Symantec bought Blue Coat Systems and LifeLock for $ 7 billion, which resulted in lower revenues and profits. This led to a fall in Symantec shares and the dismissal of CEO Greg Clark two months ago. In August 2018, after lowering the revenue forecast, Symantec announced that it intends to downsize its global staff by 8%. By the end of 2018, the company's shares fell by 33%, but in 2019 increased by 17%.

The main business of Broadcom is development of chips and processors. It competes with Intel, Qualcomm, Nvidia, AMD, Micron and other manufacturers. A year ago, Broadcom bought CA Technologies, a developer of IT infrastructure management software. The $ 18 billion deal doubled the debt on Broadcom’s balance to $ 34 billion. However, despite the deteriorating liquidity situation, Broadcom was able to increase marginality of CA Technologies and turned the stagnating IT infrastructure management business into an interesting investment story.

Symantec is the world's largest cybersecurity software maker, providing products and services to more than 350,000 organizations and 50 million people. Buying Symantec could increase Broadcom's debt to a maximum of $ 18.5 billion, but even so the merger may be good for both companies. Broadcom can optimize Symantec performance and reduce costs.

After reporting the possible deal, Symantec shares rose by 13.6%, while the company's capitalization reached $ 16 billion. Broadcom, on the contrary, fell in price by 3.5% to $ 113.4 billion.

Symantec’s acquisition of Broadcom could be the second transaction in history when a chip manufacturer acquires a cybersecurity software developer. The first deal happened in 2011, when Intel Corporation acquired McAfee, Inc. for $ 7.7 billion. But already in 2016, Intel sold a controlling stake in McAfee to TPG investment fund for $ 3.1 billion after an unsuccessful attempt to take a leading place in the computer security industry.

JPMorgan experts believe that Broadcom securities could rise by 23% by June 2020. Analysts polled by Refinitiv expect growth of 16% from stocks. 24 profile experts recommend buying shares of Broadcom, 11 advise to hold.