Marvell’s $1,132 Offer for Lumentum Is Now Worth $771

SANTA CLARA, Calif., Nov. 2 — MarvellMarvell Technology announced on Monday that it would buy Lumentum, a maker of lasers and optical modules for data centers and telecom networks, in a deal the two companies put at an enterprise value of $115 billion, or about $1,132 for each Lumentum share. What Lumentum’s holders are to receive is not a sum of money but 4.5 Marvell shares apiece, and at Monday’s close those were worth $771.35.

Marvell closed at $171.41, down 12.72 percent on the day, and Lumentum at $684.40, down 18.59 percent: below even the reduced value of the offer.

Because the number of shares is fixed, the $1,132 was a reading of Marvell’s share price on one day, Oct. 28, and the offer’s value moves with that price every trading day until the deal closes, which the companies expect in the first half of 2028.A Fixed RatioEach Lumentum share is to convert into 4.500 Marvell shares at closing, with cash only in place of fractions of a share. The merger agreement adjusts the ratio for stock splits, recapitalizations and similar changes in the shares, not for changes in either company’s share price.

That leaves Lumentum’s holders carrying two risks, Marvell’s share price and the deal’s completion, while Marvell’s holders are to hand over about a third of their company. After closing, Marvell’s current stockholders would own about 67 percent of the combined company and Lumentum’s about 33 percent, on a fully diluted basis, by the companies’ count: roughly one new Marvell share for every two already held. Matt Murphy would remain Marvell’s chairman and chief executive, and three Lumentum directors, among them Michael Hurlston, its chief executive, would join Marvell’s seven-member board.

The Arithmetic

The companies measured the deal on their closes of Oct. 28, which the release calls “the last trading day before market speculation regarding a potential transaction began.” Marvell closed that day at $251.65, and 4.5 of its shares came to $1,132.43, a premium of 23.9 percent to Lumentum’s $913.95.

Marvell then fell in each of the next three sessions. It lost 13.24 percent on Oct. 29, a day Lumentum rose 0.61 percent, and 10.05 percent on Oct. 30, when the PHLX Semiconductor index fell 7.20 percent. With Monday’s fall it was down 31.9 percent from Oct. 28, against 25.1 percent for Lumentum and 11.6 percent for the chip index.

The 23.9 percent premium the companies announced had become, at Monday’s prices, a discount of 15.6 percent to Lumentum’s own close on Oct. 28. The offer has lost $361.08 a Lumentum share since that day, 4.5 times Marvell’s fall of $80.24.

At Monday’s closes the market valued a Lumentum share at 3.99 Marvell shares, not the 4.5 the agreement promises; the offer stood 12.7 percent above Lumentum’s trading price. In the usual reading of a merger spread, that gap is the price of waiting until 2028 and of the chance that the deal never closes. Measured against the same terms, the gap had been 6.9 percent on Oct. 29 and 5.1 percent on Oct. 30, before the terms were public.The SpreadFour and a half Marvell shares were worth $771.35 at Monday’s close; Lumentum closed at $684.40, or $86.95 less. A Lumentum holder receives the Marvell shares, whatever they are then worth, only if the deal closes.

The Wait

The companies expect to close in the first half of 2028, after the agreement’s first outside date of Nov. 1, 2027, which extends automatically, three months at a time, to Aug. 1, 2028, if only regulatory conditions remain unmet. Both sets of stockholders must vote: Lumentum’s on the merger, Marvell’s on issuing the shares and amending its charter to authorize more. The companies are to file the joint proxy statement, in a Form S-4, “as promptly as reasonably practicable.”

Beyond the United States, the filings do not say which governments must approve. The agreement requires the end of the U.S. waiting period under the Hart-Scott-Rodino Act and any other approvals “as set forth on Section 7.1(c) of the Parent Disclosure Letter,” a document not among those filed; the laws it covers include antitrust laws and “any U.S. or non-U.S. Applicable Laws designed to regulate non-U.S. investment.” Marvell need not agree to divestitures or other remedies that “would reasonably be expected to be material (in an adverse manner)” to the combined business, the agreement says.

Marvell can owe Lumentum a $3.2 billion “Regulatory Termination Fee” if the agreement is ended in specified circumstances tied to the outside date or to a final regulatory block, provided the other closing conditions are met or capable of being met, the 8-K says. Marvell would owe $5.8 billion if Lumentum terminated after Marvell’s board withdrew its recommendation, or if Marvell terminated to enter a superior deal; Lumentum would owe $2.9 billion in the corresponding cases.The Fees in ProportionMeasured against the announced enterprise value of $115 billion, the regulatory fee is 2.8 percent, Marvell’s $5.8 billion fee 5.0 percent and Lumentum’s $2.9 billion fee 2.5 percent.

The Case

The companies’ case is that the deal joins Marvell’s chips to Lumentum’s lasers as the links in AI data centers move from copper to light, in a total addressable market they expect to reach $550 billion in 2030. “AI infrastructure is undergoing a fundamental architectural shift toward optical connectivity, creating an opportunity that comes along once in a generation,” Mr. Murphy said in the release. The companies claim “line of sight to more than $1 billion in annual run-rate cost synergies” and expect the deal to add to Marvell’s non-GAAP earnings per share in its first year after closing.

Lumentum brought its own numbers. Its revenue in the quarter to Sept. 26 was $1,262.6 million, up 136.5 percent from $533.8 million a year earlier, and it forecast $1.575 billion to $1.625 billion for the current quarter. “During the quarter, we secured our second major NPO/CPO win, backed by purchase commitments exceeding $5 billion,” Mr. Hurlston said in its results release. On the call, Mr. Murphy put the two companies’ pro forma figures at “$17.7 billion in annualized revenue and a non-GAAP operating margin of 39%.”

The sharpest question on the call came from Vivek Arya of Bank of America Securities, who said Lumentum had “partly traded at this valuation” because of shortages, and asked how Marvell could be “so sure that you’re not buying, right, a company at the peak of its shortage environment.” Mr. Murphy said Marvell had shortages of its own, and that diligence had left both sides “even more convinced that this is going to last because the design wins are real.” “And it’s not just a supply-demand situation. This is fundamentally a shift in the architecture inside the data center,” he said.

This is fundamentally a shift in the architecture inside the data center.

Earlier, Tom O’Malley of Barclays had asked why now, when part of the near-term revenue was “highly levered to some of the indium phosphide supply-demand dynamics.” Mr. Murphy said: “So just want to make one thing clear, that the tight supply is not the reason we’re wanting to enter this transaction now.” He called the tight supply “a byproduct of our thesis.”Indium PhosphideA compound semiconductor used in Lumentum’s lasers. “Indium phosphide is a compound semiconductor that can naturally emit and absorb light efficiently, which standard CMOS simply cannot do,” Mr. Hurlston said on the call.

Both stocks had paid their holders well before Monday: Marvell had more than doubled in the past year and Lumentum had quadrupled, CNBC reported. The Form S-4, which Marvell says it intends to file, is the next document to watch. Until the deal closes or fails, the offer is worth 4.5 times Marvell’s last close: $771.35 on Monday. The $115 billion and the $1,132 describe Oct. 28.