S&P slashes Broadcom's outlook on CA purchase

Business 7/13/2018, 8:59 PM
S&P slashes Broadcom's outlook on CA purchase

Broadcom Inc. got its perspective revised to stable from positive on Friday by S&P Global Ratings. The credit appraiser, which assigned the same, BBB- rating to the new parent company of Broadcom Ltd., cited this week's deal to acquire CA Technologies, based in New York, for $18.9 billion. The transaction implies "a substantial amount of debt" for the software maker – $18 billion, the report said and highlighted the important chunk of the target's revenue from legacy mainframe architecture.

The "material strategic shift and a departure" from an earlier stance regarding mergers and acquisitions brings "great uncertainty in the company's future growth plans," analysts wrote. On the flipside, the semiconductor manufacturer with headquarters in San Jose is seen with a mid-single-digit organic sales growth and an expected push to lower debt.

Broadcom, which used to be called Avago before the purchase of Broadcom Corp., moved the legal seat to Delaware from Singapore in April. Its acquisition target is also known as CA Inc. The takeover prompted a selloff in Broadcom's shares, wiping out the value roughly matching the proposed transaction, which puts enterprise value at $18.4 billion.

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