Shares of Broadcom Inc. (NASDAQ: AVGO) rose on Friday amid reports that the semiconductor giant had secured financing to acquire Symantec (NASDAQ: SYMC), a leading cybersecurity company.

 

Broadcom Plans to Acquire Symantec

After weeks of speculation, Broadcom has reportedly secured financing to acquire Symantec in an all-cash deal worth more than $22 billion. According to Bloomberg, the leading chipmaker has already received commitments from multiple banks to fund the acquisition. The deal is expected to give the newly merged company synergy potential of roughly $1.5 billion.

Based on latest reports, a deal could get finalized as early as next week, though talks could drag on for longer.

Symantec would mark Broadcom’s second major acquisition of the past year, as well as its second big bet in software. Last July, the company purchased CA Technologies, an IT management software provider, for $18.9 billion in cash.

Founded in 1982, Symantec has become synonymous with cybersecurity and has some of the world’s biggest enterprise customers. A Fortune 500 company, Symantec generated $4.7 billion in revenue during fiscal 2019. Revenues have declined sharply since the financial crisis.

During its most recent quarter, the Mountain View, California-based company earned an adjusted $0.39 per share on revenue of $1.2 billion. Earnings were down 11.4% from a year ago. The company has issued positive revenue guidance for fiscal 2020, but earnings are likely to stagnate due to slimmer operating margins.

Symantec’s stock has rebounded sharply over the past month and currently trades at more than one-year highs. Much of that rally came on the back of Broadcom takeover rumours.

 

Broadcom Stock Rises

Symantec takeover rumours sparked a huge rally in SYMC stock, but failed to translate into similar results for AVGO. Broadcom’s stock declined sharply at the start of July and eventually bottomed in the mid-$273 range. AVGO has since recovered more than 3%, with the large majority of the gains occurring Friday.

Broadcom Share Price YTD - Jul 12 2019

Source: Yahoo Finance

AVGO is currently trading just below $282 for a market cap of $111.6 billion. The stock hit an all-time high back in March after posting better than expected fiscal first-quarter results. It then proceeded to tank in June following disappointing second-quarter revenue. The company also downgraded its outlook for 2019 due to ongoing U.S.-China trade tensions. As a semiconductor stock, AVGO is extremely sensitive to the trade war.

As a semiconductor stock, AVGO is extremely sensitive to the trade war.

President Trump and China’s Xi Jinping reached a tentative truce last month and agreed to return to the negotiating table. The two superpowers appear keen on reaching a new trade agreement, but have yet to make meaningful progress.

 

Conclusion

Symantec stands to benefit from a Broadcom acquisition due to sluggish growth and regulatory issues plaguing the cybersecurity company. For Broadcom, Symantec provides a segue into a critical market at a time of great uncertainty for semiconductor companies. A deal, if and when finalized, could offer a win/win scenario for shareholders.

Disclaimer: Author holds no investment position in Broadcom or Symantec at the time of writing.