Semiconductor supplier Broadcom (AVGO -1.98%) was more than ready to make a major acquisition earlier this year, offering to purchase Qualcomm (QCOM -2.74%) in a staggering deal valued at more than $100 billion. But management's tone has shifted. While a large acquisition still could be in the cards for Broadcom, management is adding another option for its free cash flow: buy back $12 billion worth of its own stock. 

Broadcom said on Thursday that its board had authorized up to $12 billion for repurchases of its common stock. The authorization is effective immediately and lasts until Nov. 3, 2019. The repurchase program gives Broadcom the ability to use its free cash flow "not only for acquisitions but also for opportunistic buybacks," said Broadcom CFO Tom Krause in a press release on Thursday.

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Taking a breather

The aggressive share-repurchase authorization follows Broadcom's drawn-out attempt to acquire Qualcomm. The attempt began in November of last year and extended to March 14, 2018, when Broadcom withdrew its offer to acquire Qualcomm following President Trump's executive order to block the takeover due to national security concerns. 

Broadcom's aggressive efforts to purchase Qualcomm made for quite a frenzy, featuring nearly 20 press releases. In addition, the acquisition attempt took place just as Qualcomm was trying to purchase NXP Semiconductors N.V. Adding to the noise, Intel reportedly was ready to make an offer to buy Broadcom. 

After so much of management's energy was spent on a failed takeover attempt, Broadcom may be reconsidering other capital-allocation strategies.

Seeking out the highest returns for shareholders

Broadcom's Thursday announcement that it authorized $12 billion for repurchases represents a marked change in the company's strategy for capital allocation, which previously prioritized acquisitions for any free cash flow beyond the 50% it said it planned to pay in dividends.

In Broadcom's first-quarter earnings call last month, management said its overall approach to allocation of its free cash flow was to pay 50% of it in dividends and to use the remaining amount on acquisitions, repurchases, or debt payments, depending on which area offered the highest return on investment. At the time of the call, Krause said acquisitions were the most attractive option: "As you all know, Hock and I are quite familiar with the industry landscape and, sitting here today, we do see potential targets that are consistent with our proven business model and that also can drive returns well in excess of what we would otherwise achieve buying our own stock and/or paying down debt."

Recent stock-price volatility may have influenced Broadcom to be better prepared to capitalize on opportunities to buy its own stock at a discount. Broadcom's stock was trading above $260 in the days leading up to its first-quarter earnings report, but then fell to as low as $228 earlier this month. Shares are now trading at $239.

Whether Broadcom ends up using its excess free cash flow beyond dividend payments to make a large acquisition, repurchase shares, pay down debt, or a combination of these activities, it's good that management is considering different options in an effort to maximize returns for shareholders. Further, the fact that Broadcom can even authorize such an aggressive repurchase program while continuing to scan for acquisition opportunities highlights the company's strong financial health. Broadcom raked in $5.5 billion in free cash flow in fiscal 2017, up from $2.7 billion in fiscal 2016, and its trailing-12-month free cash flow was $5.9 billion. 

Investors seemed to like the news of Broadcom's repurchase authorization, as shares were up more than 4% in after-hours trading at the time of this writing.