SYMC Symantec Corporation

By Asa Fitch 

Broadcom Inc. struck a $10.7 billion deal to buy Symantec Corp.'s enterprise security business, as it steps up efforts to expand beyond chip making.

Semiconductor maker Broadcom, which has a history of acquisitions, Thursday said the cash acquisition was the next logical step in building a business around software for companies.

The Wall Street Journal on Wednesday reported the two companies were close to a deal after talks for Broadcom to buy all of Symantec collapsed last month.

The part of Symantec, best known for its antivirus software, that Broadcom is buying focuses on sales to companies. That part contributes roughly half of Symantec's $5 billion in annual revenue. The consumer segment accounts for the rest of the 37-year old company's revenue.

Broadcom Chief Executive Hock Tan has been focused on diversifying beyond the company's core chip business and pushing into the lucrative software arena. Last year, he struck a roughly $19 billion deal to buy software firm CA Technologies, formerly Computer Associates.

The Symantec business will add an expected $2 billion to Broadcom's annual revenues going forward, Broadcom said, and would generate savings of more than $1 billion by eliminating cost overlaps in the year after the deal closed.

After the deal closes, Broadcom will own the Symantec brand name, the two companies said.

Broadcom said it would maintain its dividend policy of paying investors half of its free cash flow from the previous fiscal year, and use excess cash to pay down debt rather than repurchase shares. The chip maker maintained its guidance of generating $22.5 billion in revenue for the current fiscal year that ends in November.

Broadcom's efforts to diversify into software through acquisitions have gained particular importance after the chip maker's attempt in 2018 to buy rival Qualcomm Inc. failed. President Trump blocked that proposed takeover, citing security risks. Broadcom has since moved its headquarters from Singapore to San Jose, Calif., to help alleviate such national-security concerns.

Tech companies have been splurging on software acquisitions, with large deals and many small ones. Salesforce.com Inc. Wednesday announced the $1.35 billion acquisition of ClickSoftware Technologies Ltd., which works on workplace-management software. Microsoft Corp. last week acquired a small software provider, BlueTalon, for an undisclosed amount to bolster its cloud-computing business.

Shares of Symantec surged more than 12% Wednesday after The Wall Street Journal's report, and climbed further on Thursday. Shares had fallen sharply in July after the two companies failed to reach an agreement on the terms of a full-company sale. Broadcom shares were flat in after-hours trading Thursday following a slight uptick at the close.

Symantec said it would pay a special dividend of $12 a share and boosted a stock repurchase program by $1.1 billion to $1.6 billion.

Rick Hill, Symantec's interim president chief executive, said the deal gave the company a narrower, but clearer, focus on the consumer cybersecurity business, which includes Norton antivirus products.

Symantec is the world's largest seller of security software for corporate networks, but its consumer business is far more profitable, generating operating margins of roughly 40%, according to a Bernstein Research note. Still, Broadcom investors may welcome the narrower acquisition because corporate-security software is a better fit than the consumer products with its overarching strategy, the note said.

Separately, Symantec reported an 8% increase in sales to $1.25 billion for the first quarter of its financial year. It swung to a $0.04 per share profit in the period from a $0.12 per share loss for the year-prior quarter. Symantec also announced plans to cut around 7% of its employees and close facilities as part of a new restructuring plan.

For Symantec, the deal should help it leave behind turmoil of recent years, including accounting issues that led to restated financials and executive departures. In May, Symantec's former Chief Executive Greg Clark resigned abruptly, and its chief financial officer, chief operations officer and chief marketing officer have also recently departed. A year ago it drew the attention of activist investor Starboard Value LP, which struck a settlement for board representation.

Write to Asa Fitch at asa.fitch@wsj.com

(END) Dow Jones Newswires

August 08, 2019 18:38 ET (22:38 GMT)

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