Key Takeaways
- Marvell agreed to buy Lumentum in an all-stock deal valued at $115 billion, and Marvell shares fell 5% today.
- Marvell is paying in stock because it had just $3.9 billion of cash, so its current shareholders give up a third of the combined company.
- Lumentum’s sales more than doubled in two years, and its guidance for the December quarter alone is more than it sold in the whole year to June 2024.
- Fiber looks like the right bet, but Marvell is paying a full price at a hot moment in the optics cycle, and its shareholders carry that risk.
Marvell Technology (MRVL) is buying Lumentum (LITE) for $115 billion, and it’s paying for the whole thing in its own stock.
Marvell shares fell 5% today on the news. That came after a week in which investors had already balked at reports of the talks.
Marvell chairman and CEO Matt Murphy calls it a rare chance: “AI infrastructure is undergoing a fundamental architectural shift toward optical connectivity, creating an opportunity that comes along once in a generation.”
Maybe so. But Marvell’s own shareholders are the ones paying for it.
The details
The final price came in above the roughly $100 billion floated before the announcement. Here’s how the deal works:
- Lumentum shareholders get 4.5 Marvell shares for each of theirs. The companies valued that at about $1,132 a share, a 24% premium to Lumentum’s close on Oct. 28, the last trading day before reports of the talks.
- Marvell shareholders will own about 67% of the combined company on a fully diluted basis, and Lumentum shareholders about 33%.
- The companies expect more than $1 billion of annual cost savings. They say the deal will add to Marvell’s non-GAAP EPS in the first year after it closes, which should be in the first half of 2028.
Lumentum’s stock fell 10% today, too. Its holders are paid in Marvell shares, so the deal is worth less to them every time Marvell’s stock drops.
TIKR tracks 47 analysts on Marvell. How many say “Buy”?
See the full breakdown of Buy, Hold, and Sell ratings on Marvell, along with Wall Street’s revenue and earnings estimates, all in one place. More than 500,000 investors use TIKR to research stocks like this one. See Marvell’s Analyst Ratings
Marvell’s shareholders are footing the bill
Giving Lumentum’s owners a third of the combined company means Marvell’s share count goes up by about half.
All those new shares get a cut of earnings that analysts already expect to soar. They see Marvell’s EPS climbing from $2.84 in the year ended January 2026 to $12.61 in the year ending January 2029, the year the deal should close:
For Marvell’s EPS just to hold steady, Lumentum’s earnings plus the cost savings have to add up to about half of what Marvell earns on its own. To get past that in year one, management is counting on Lumentum’s profits growing right alongside Marvell’s.
Marvell has done this before, on a smaller scale. When it bought Inphi mostly with stock, its diluted share count rose 19% from fiscal 2021 to fiscal 2022. This time it’s about 50%.
Marvell couldn’t write a check this big
Paying cash was never an option. Marvell’s cash and short-term investments sat under $1 billion for four straight years. They only got to $2.6 billion by the end of January because Marvell sold its automotive Ethernet business for $2.5 billion in cash:
By Aug. 1, cash was up to $3.9 billion, against $5.0 billion of debt. That’s enough to cover about 3% of Lumentum’s price.
So Marvell paid with what it had: its stock, which is still up more than 120% this year, even after the past week’s drop.
Lumentum is selling everything it can make
Marvell is buying a company that can’t keep up with its orders. On Oct. 29, Bloomberg’s Ryan Gould said on Bloomberg Tech that Lumentum’s CEO “said that they’re sold out to 2029, that they probably will be able to meet sort of something like 70% of their order backlog due to demand.”
Today, Lumentum CEO Michael Hurlston said the company landed its second major win in near- and co-packaged optics, backed by more than $5 billion of purchase commitments.
Lumentum’s sales dipped to $1.36 billion in the year to June 2024, then more than doubled to $3.01 billion two years later:
And it’s speeding up. Lumentum guided for $1.575 billion to $1.625 billion of revenue in the December quarter alone. That’s more than it sold in the whole year to June 2024.
CNBC’s Jim Cramer made the long-term case on Mad Money on Friday. Murphy, he said, “knows that all the copper in data centers will eventually be replaced by fiber optics.” Optics has boomed before, though. Cramer himself brought up JDS Uniphase’s purchase of SDL in mid-2000, before rejecting the comparison.
Lumentum is sold out through 2029, about a year past the expected close, so the companies’ EPS promise has orders behind it. Marvell shareholders are betting their third on what comes after 2029.
The right idea at a full price
Bottom line: I think Murphy is right that fiber wins inside the data center. But Marvell is handing over a third of the company for a business whose sales just doubled. That only pays off if Lumentum keeps growing once today’s order book is filled, and that’s a lot of risk for Marvell shareholders to take on.
The deal still needs shareholder and regulatory approval. Marvell said today that its third-quarter revenue will come in within 2% of $3.15 billion, the middle of its guidance, and the full report is due in early December. If Lumentum keeps beating its own guidance up to the 2028 close, this price will look a lot more reasonable.
So what is Marvell stock actually worth if the deal doesn’t go through?
TIKR lets you forecast the future price of any stock in less than a minute. Just enter a few assumptions into TIKR’s valuation model and see what Marvell could be worth. Start from Wall Street consensus estimates, or adjust the inputs to reflect your own view of the business. It’s free to use.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
