(Bloomberg) -- Broadcom Inc. is in advanced talks to buy cybersecurity firm Symantec Corp., according to people familiar with the matter, seeking a further expansion into the more profitable software business.
Broadcom could reach an agreement to buy the Mountain View, California-based company within weeks, said the people, who asked to not be identified because the matter isn’t public. No deal has been finalized and the talks could fall through, the people said.
A representative for Symantec declined to comment. A representative for Broadcom didn’t immediately respond to a request for comment.
Symantec’s shares rose 18% in premarket trading Wednesday in New York. They closed Tuesday at $22.10, giving the company a market value of about $13.7 billion. Broadcom slipped about 4% in late trading Tuesday. They had fallen 1.7% in regular New York trading to close at $295.33, giving the semiconductor maker a market value of about $118 billion.
What Bloomberg Intelligence says:
Broadcom’s potential purchase of another asset with $4+ billion in software sales is likely its most ambitious deal yet - leaderless Symantec has been losing share, even in its core segments. Broadcom CEO Hock Tan will likely need to aggressively cut Symantec costs while keeping sales stable.
The deal would mark Broadcom’s second big bet in software, following its $18 billion takeover last year of CA Technologies. That transaction spurred some investors to express concern that Broadcom Chief Executive Officer Hock Tan’s acquisition strategy was being stretched too far after playing a key role in consolidating in the $470 billion chip industry.
That deal also came after San Jose, California-based Broadcom abandoned a hostile pursuit of rival chipmaker Qualcomm Inc., when U.S. President Donald Trump blocked the transaction citing national security risks.
Some analysts saw the potential purchase of Symantec as a positive for Broadcom.
“Symantec would make a perfect fit for the Broadcom portfolio,” Harsh Kumar, an analyst at Piper Jaffray wrote in a note to investors. He said the situation is similar to Broadcom’s CA acquisition, “which ultimately turned out to be extremely successful under the Broadcom umbrella.”
Symantec Challenges
Symantec is the world’s biggest maker of cybersecurity software, providing products and services to more than 350,000 organizations and 50 million people, according to its annual report.
The company has faced a list of challenges in the past year, grappling with heightened competition, the abrupt departure of its chief executive officer, waning consumer interest in antivirus programs and a financial investigation that ended with restated earnings. The shares have gained about 17% this year, recovering from a 33% slump in 2018.
Activist investor Starboard Value LP won three board seats on the company in September.
Broadcom wouldn’t be the first chipmaker to try a foray into security software. In 2011, Intel Corp. acquired McAfee Inc. for $7.7 billion. Intel’s plan was to hard-wire some of the software’s capabilities into its market-leading personal-computer processors. The semiconductor maker was never able to pull that off, and ended up spinning off the unit in 2016 in a sale to TPG that valued the business at $4.2 billion.
Under Tan, Broadcom has pursued a different strategy for software. Tan said he acquires ‘‘franchises,’’ groups or businesses within companies that have sustainable market positions through technology leadership. He then invests in them to maintain that leadership, running them as distinct parts of Broadcom, rather than integrating the acquired products.
“Broadcom’s approach to M&A is to deliver high cash on cash returns, which it has been quite successful in achieving,” Morgan Stanley analyst Craig Hettenbach wrote in a report earlier this week. “In semiconductors, the company was early and led the wave of consolidation seen across the industry. However, with many assets already off the board and remaining companies trading at high valuation multiples, the opportunity set in semis is much lower today.”
