Broadcom to buy Symantec unit for US$10.7 billion 1

Broadcom Inc on Thursday said it agreed to buy Symantec Corp’s division that serves business customers for US$10.7 billion in cash, adding software designed to keep hackers out of corporate systems.

The deal, which is expected to close in Broadcom’s fiscal first quarter ending in January, comes less than a month after the two companies’ discussions for a full merger fell apart over disagreements about the price.

The transaction will refocus Symantec on its consumer-facing products, such as the LifeLock identity-protection brand and Norton antivirus software.

The acquisition marks Broadcom’s second big bet in software, following its US$19 billion takeover of CA Technologies last year.

Chief executive Hock Tan (陳福陽) is spreading the reach of the company he built through acquisitions in the chip industry, and is now using a similar playbook to extract value from software assets that are struggling to grow.

Symantec has been grappling with major challenges in the past year, facing job cuts, an internal investigation that led to restated earnings and the sudden departure of its CEO in May.

The 37-year-old company provides products and services to more than 300,000 businesses and 50 million consumers, according to its Web site.

Broadcom will use its sales channels to pitch Symantec products to its corporate customers. It expects US$2 billion in sustainable revenue from the acquisition, which is expected to deliver earnings before interest, tax, depreciation and amortization of US$1.3 billion.

The company will carve out “more than US$1 billion of run-rate cost synergies within 12 months following close,” it said in the statement.

The transaction does not need approval in China, chief financial officer Tom Krause said on a conference call.

Broadcom is maintaining its fiscal 2019 sales forecast of US$22.5 billion.

About US$17.5 billion of that revenue would come from chips and US$5 billion from infrastructure software, the company said in the statement.

The chip market is still suffering from the impact of the trade dispute between China and the US, but business conditions have not worsened since the company gave its forecast in June.

Symantec had been projected to report overall sales growth of just 1 percent in its current fiscal year, according to analysts’ estimates.

That would follow a 2 percent decline in the previous 12 months.

Symantec’s lackluster outlook mirrors the performance of previous targets for Tan and his team. So far, he has been successful in turning them around.

The enterprise business generated about US$2.3 billion in sales in the past fiscal year.

While Symantec’s revenue may not be growing, the purchase of a piece of the company would bring with it wider profit margins — higher than those typically achieved in the chip industry, which historically requires greater levels of investment and higher costs to build products.

Symantec’s gross margin would reach 83 percent this year, according to estimates.

Broadcom’s margin is predicted to be a full 10 percentage points lower than that.

Symantec said the sale is expected to generate US$8.2 billion after taxes, which it would distribute to shareholders after the completion of the deal in the form of a special dividend of US$12 a share.

It plans to cut jobs, reducing its headcount by about 7 percent, and to close some facilities, incurring charges of about US$100 million.