Symantec Analyst Says Cybersecurity Company's Investors Would Benefit From Broadcom Buyout

A potential Broadcom Inc AVGO acquisition of Symantec Corporation SYMC would be "very favorable" for Symantec investors, but bad for Broadcom's product innovation, according to Baird.

The Analyst

Jonathan Ruykhaver maintained a Neutral rating on Symantec with an unchanged $22 price target.

The Thesis

The latest media reports suggest Broadcom could buy Symantec for more than $29 per share, which represents a 32% premium to where Symantec's stock traded before initial rumors of a deal surfaced, Ruykhaver said in a Monday note. (See his track record here).

Broadcom reportedly identified $1.5 billion in annual synergies, but this looks to be "rather aggressive" given fundamental differences in the chip and cybersecurity markets, the analyst said. 

Even if Symantec is able to show a best-in-class structure of 10% of revenue spent on R&D, 15% on S&M and 2% on G&A, Broadcom would only be able to show $1.18 billion in annualized synergies, he said. 

If reports of a deal are accurate, it will be beneficial to Symantec investors, Ruykhaver said.

On the other hand, the synergy targets imply that thousands of workers will likely be let go, which "almost certainly" guarantees a drop in product competitiveness over time, the analyst said.

Rival companies — especially Palo Alto Networks Inc PANW — could take advantage of the large influx of specialized workers and benefit at Broadcom's expense, he said. 

Former Symantec CEO Greg Clark is reportedly also in the mix to buy Symantec as part of a group of investors with private equity backing, Ruykhaver said, adding that it seems the consortium of investors are "uncompetitive on price."

Price Action

Broadcom shares were trading slightly higher at $275.18 at the time of publication Tuesday, while Symantec shares were trading slightly higher at $25.64. 

Related Links:

Report: Broadcom Secures Financing For Symantec Acquisition

Analyst Says Now Is The 'Golden Time' For Symantec To Sell Itself To Broadcom

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