Key Takeaways
- Marvell Technology shares fell 12% after a report that it’s in advanced talks to buy the optics maker Lumentum.
- Lumentum is worth about a third as much as Marvell, so a deal would likely mean a lot of new Marvell shares.
- Owning Lumentum’s lasers would make Marvell a bigger rival to Broadcom and Coherent in AI networking.
Marvell Technology (MRVL) stock is down 12% today after Bloomberg reported late Wednesday that it’s in advanced talks to buy Lumentum (LITE), whose stock is up 2%. A deal could come as soon as next week.
Lumentum’s lasers would let Marvell sell more of the AI networking that Broadcom (AVGO) sells with its custom chips. They would also give Coherent (COHR), the other big optics supplier, a rival with Marvell’s chips behind it.
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The price is the problem
When the report came out, Lumentum’s market value was about $83 billion, against about $221 billion for Marvell. Marvell had $3.93 billion of cash on Aug. 1. So a deal would almost certainly be paid for largely in new shares.
Marvell has done that before. Its share count jumped after it bought Cavium in 2018 and Inphi in 2021, both largely with stock:
It’s still climbing: 921 million diluted shares in the quarter ended Aug. 1.
And Lumentum isn’t cheap. It traded at 42x forward earnings at Wednesday’s close, before today’s jump and any takeover premium. Its five-year average is 30x:
Broadcom and Coherent have a stake
For Broadcom, a rival gets bigger in its own lane. Broadcom’s AI semiconductor revenue hit $16.7 billion in the quarter ended Aug. 2, up 221%. That’s more than six times Marvell’s total revenue in its latest quarter. When Broadcom reports in December, does management think Marvell is catching up on optics?
Coherent faces a different question. Its revenue rose 34% to $2.05 billion in the quarter ended June 30, so it doesn’t need a deal to grow. But with Lumentum inside Marvell, Coherent would be the big laser maker not tied to a chip designer. Will customers who want an independent supplier send it more orders? Its report in early November is the first chance to hear.
Wait for the terms
My take: investors are right to balk. Owning the lasers fits Marvell’s strategy, but paying a rich price in new shares makes the deal better for Lumentum’s shareholders than for Marvell’s.
Of course, nothing is signed yet, and better terms could change the math.
So what is Marvell stock actually worth if the deal doesn’t go through?
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