Broadcom Inc. stock was on track for its worst one-day performance ever Thursday, as investors and analysts appeared confused about a self-proclaimed leading infrastructure-technology company agreeing to pay a premium for a legacy mainframe software company.
That confusion took the form of Broadcom AVGO, -14.14% stock falling more than 15%, hitting an intraday low of $197.46. Until now, the stock’s worst day was on Oct. 10, 2014, when shares finished down 11.5%. More than 34 million shares changed hands by 2 p.m. Eastern, compared with the stock’s 52-week average daily volume of 3.3 million.
Late Wednesday, Broadcom said it was offering $18.9 billion for CA Inc. CA, +18.21% , confirming earlier reports. The offer is Broadcom’s first major acquisition offer since the chip maker’s blocked acquisition of Qualcomm Inc. QCOM, +1.51% earlier in the year. Ironically, about $16 billion has been shaved from Broadcom’s market cap in Thursday trading.
Following the announcement, seven analysts cut their price targets on Broadcom, with three of those same analysts downgrading the stock to a hold rating, according to FactSet data. In contrast, two analysts raised their price targets, and one upgraded the stock to buy. All told, of the 38 analysts who cover Broadcom, 33 have overweight or buy ratings and five have hold ratings on the stock with an average price target of $305.57.
Instinet analyst Romit Shah, in a note entitled “Do We Still Trust Hock?” appeared very critical of Broadcom, suggesting the deal called into question the credibility of management, while recognizing the “impeccable track record” of Chief Executive Hock Tan.
“CA is a legacy software company that specializes in mainframes — shared synergies are not obvious,” Shah said. “More important is that this deal runs completely