Broadcom to buy Symantec's enterprise unit for $14.7b cash

SAN FRANCISCO • Broadcom Inc said it has agreed to buy Symantec Corp's division that serves business customers, for US$10.7 billion (S$14.7 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 announced on Thursday will refocus Symantec on its consumer-facing products, such as the LifeLock identity-protection brand and Norton anti-virus software.

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

Chief executive officer Tan Hock Eng 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 website.

"This transaction represents the next logical step in our strategy following our acquisitions of Brocade and CA Technologies," Mr Tan said in a statement.

Broadcom will use its sales channels to pitch Symantec products to its corporate customers.

The company said it expects US$2 billion in sustainable revenue from the acquisition, which will deliver earnings before interest, tax, depreciation and amortisation of US$1.3 billion.

Broadcom will carve out "more than US$1 billion of run-rate cost synergies within 12 months following close", it said.

The transaction doesn't need approval in China, chief financial officer Tom Krause said.

Broadcom is maintaining its fiscal year 2019 sales forecast of US$22.5 billion. About US$17.5 billion of that revenue will come from chips and US$5 billion from infrastructure software, it said.

The chip market is still suffering from the impact of the trade dispute between China and the United States, but business conditions haven't worsened since the company gave its forecast in June.

Broadcom is going to concentrate the use of its cash flow on paying down debt to make sure it retains its investment rating, Mr Krause said.

Symantec had been projected to report overall sales growth of just 1 per cent in its current fiscal year, according to analysts' estimates. That would follow a 2 per cent decline in the previous 12 months.

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

The enterprise business generated about US$2.3 billion in sales in the last fiscal year for the Mountain View, California-based company.

While Symantec's revenue may not be growing, the purchase of a piece of the company will 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, the percentage of sales remaining after deducting costs of production, will reach 83 per cent 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 will provide 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 per cent. It'll also close some facilities, incurring charges of about US$100 million.

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A version of this article appeared in the print edition of The Straits Times on August 12, 2019, with the headline 'Broadcom to buy Symantec's enterprise unit for $14.7b cash'. Print Edition | Subscribe