So far today, Broadcom, the semiconductor chipmaker that is based in California, has lost $19 billion (£13.7 billion) in market value setting the company on course for its worst-ever one-day fall. This comes following the announcement of a surprise $18.9 million acquisition deal for CA, a software company. It seems that the plan did not sit well with analysts and investors. It raised some eyebrows over the logic behind its unexpected pivot from attempting to gobble up a competitor to move into the world of infrastructure software.
The firm revealed no clear reason behind the acquisition that took place yesterday. It led stumped investors to drive down the share price of the company to as low as 19 percent to $197.50 in the biggest loss of Broadcom to date. Meanwhile, the share price of CA has increased by 18 percent with its shares moving 18 percent higher to $43.96 and approaching the $44.50 per share that was offered by Broadcom.
The news comes after Donald Trump, the President of the United States of America, blocked its $117 billion merger with Qualcomm, a Chinese company, earlier this year, as one of the casualties of the ongoing trade war between China and the United States.
In a note, analysts from B Riley wrote that the unexpected deal would potentially generate “a multi-quarter share overhang,” cutting the price target of the company by $63 to $245.
CMC Markets’s David Madden disclosed that while the stock of Broadcom has rocketed during recent years because of its acquisition habit, various traders are sceptical regarding the takeover because they cannot see “an obvious connection” between the two firms.
He added: “They are in different spaces of the tech world, and some dealers might view this deal, as a takeover for the sake of expanding.”
He added: “CEO Hock Tan has a great track record when it comes to expansion, so it’s hard to question him the takeover king, but the severe sell-off in the stock suggests he has lost a few subjects.”