By Asa Fitch
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 9, 2019).
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, said Thursday the cash acquisition was the next
logical step in building a business around soft
ware 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 about half of Symantec's $5 billion in annual revenue.
The consumer segment accounts for the rest of the 37-year-old
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
The Symantec business will add an expected $2 billion to
Broadcom's annual revenue 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
Tech companies have been splurging on software acquisitions,
with large deals and many small ones. Salesforce.com Inc. on
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,
Blue-Talon, for an undisclosed amount to bolster its
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
Rick Hill, Symantec's interim chief executive, said the deal
gave the company a narrower, but clearer, focus on the consumer
cybersecurity business, which includes Norton antivirus products.
The $10.7 billion price was attractive to Symantec, he said, given
that the segment being sold accounted for just 10% of operating
profit in its last quarter.
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
4-cent per-share profit in the period from a 12-cent 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.
Once the restructuring is complete, it will leave Symantec far
leaner. The company plans to sell off underused assets including
real estate that it expects to generate $1 billion of cash. Its
employee head count, now 12,000, is expected to drop to 2,500 in
the long term, Chief Financial Officer Vincent Pilette said.
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.
Goldman Sachs & Co. served as Symantec's financial adviser
and Fenwick & West LLP was its legal adviser. Broadcom's
financial advisers included Bank of America Merrill Lynch, Morgan
Stanley, Citigroup Inc., JP Morgan & Co., Barclays PLC, Bank of
Montreal, Wells Fargo & Co., HSBC Holdings PLC and Royal Bank
of Canada. Its legal adviser was Wachtell, Lipton, Rosen &
Write to Asa Fitch at firstname.lastname@example.org
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