Morningstar

Broadcom's Bid Is Puzzling, but Financially Reasonable

The deal to acquire CA Technologies doesn't have any clear synergies, but the premium Broadcom is paying is modest for a tech merger.

 and
Securities In This Article
Broadcom Inc
(AVGO)

On July 11,

Following our preliminary take on the valuation of the combined firm, we are maintaining our $300 fair value estimate and narrow moat rating for Broadcom, as we believe the accretion stemming from the deal is offset by the premium paid. We will maintain our $35 fair value estimates for narrow moat CA. While the 27% premium is rather modest for a tech merger, the stock price for low-growth CA hasn't reached the $40 range or higher in the past 15 years, so shareholders might be wise to lock in profits. We do not anticipate any regulatory hurdles to approval, given the lack of synergies between the two firms, though it would not surprise us if the current geopolitical climate and trade tensions between the U.S. and China delayed the closing. Shares of Broadcom fell 6% during after-hours trading, as the market appears to disapprove of the deal, but we remain positive on the firm's powerhouse networking, RF filter, and connectivity portfolios.

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About the Authors

Abhinav Davuluri

Strategist
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Abhinav Davuluri, CFA, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers microprocessors, wafer manufacturing equipment, and other companies in the semiconductor space.

Before joining Morningstar in 2015, Davuluri spent two years as a process engineer for Intel.

Davuluri holds a bachelor’s degree in chemical engineering from the University of Michigan. He also holds the Chartered Financial Analyst® designation.

Brian Colello, CFA

Strategist
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Brian Colello, CPA, is a strategist, AM Technology, for Morningstar*. He covers semiconductor and hardware companies and supports our equity research-linked Indexes business. Colello was a Director of Technology Equity Research before assuming his current role in 2023.

Before joining Morningstar in 2008, Colello worked in public accounting for KPMG and served as a manager in corporate finance for BMG Music, a subsidiary of Bertelsmann AG.

Colello holds a bachelor’s degree in accounting from Bucknell University. He also holds a master’s degree in business administration from Wake Forest University’s Babcock School of Business. He is also a Certified Public Accountant.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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