Key points
- Marvell will pay Lumentum shareholders in stock
- The offer's value has fallen with Marvell's share price
- Lumentum beat earnings estimates the same morning
Marvell Technology (MRVL) agreed on November 2 to buy Lumentum (LITE) in an all-stock deal that gives the optical parts maker an enterprise value of $115 billion. Lumentum shareholders will receive 4.5 Marvell shares for each share they own.
The companies valued those shares at about $1,132, based on Marvell's October 28 closing price of $251.65. Marvell fell over the next two sessions, ending October 30 at $196.40. At that price, the same 4.5 shares were worth $883.80, by our calculations.
The offer's value moves with Marvell's stock
The companies used October 28 as their reference date, the last trading day before reports of the talks. That day, Bloomberg wrote that Marvell was nearing a deal for Lumentum. Based on that day's closing prices, the offer was worth 23.9% more than Lumentum's $913.95 share price.
Marvell then fell 13.2% on October 29 and 10.0% on October 30, a two-day decline of about 22%. Lumentum rose 0.6% on October 29, then fell 8.6% to $840.70 on October 30.
Because the exchange ratio is fixed, the value Lumentum shareholders receive will move with Marvell's stock until the deal closes. At Friday's closing prices, the offer was worth 3.3% less than Lumentum's October 28 close and 5.1% more than its Friday close. Those prices were set before Monday's announcement.
As of 7:33 a.m. ET on Monday, Marvell traded at $195.15 in premarket trading, putting the value of the 4.5 shares at $878.18. Lumentum traded at $836.77.
The deal isn't expected to close until 2028
Marvell and Lumentum expect the deal to close in the first half of calendar 2028. It needs approval from both companies' shareholders and from regulators. Both boards approved it unanimously.
After closing, Marvell shareholders will own about 67% of the combined company and Lumentum shareholders about 33%. Matt Murphy will stay on as Marvell's chairman and CEO. Three Lumentum directors, including Lumentum CEO Michael Hurlston, will join Marvell's board, which has seven members now.
The companies see a path to more than $1 billion in annual cost savings and expect the deal to add to Marvell's adjusted earnings per share in the first year after closing. They put the combined company's total addressable market at $550 billion.
Marvell makes the electrical chips that move data inside AI data centers, including custom AI chips and the signal processors used in optical links. Lumentum makes lasers, optical transceivers, and optical circuit switches, and makes its own indium phosphide chips. Lumentum said in October that its capacity for AI data center optical parts was sold out through early 2029.
"AI infrastructure is undergoing a fundamental architectural shift toward optical connectivity, creating an opportunity that comes along once in a generation," Murphy said in the release.
Lumentum reported a strong quarter alongside the deal
Lumentum also reported results on Monday for its fiscal first quarter, which ended September 26. Adjusted earnings came to $4.57 a share, above the $4.14 average analyst estimate in Robinhood's data. Revenue rose 136.5% from a year earlier to $1.26 billion.
For the current quarter, Lumentum forecast revenue of $1.575 billion to $1.625 billion and adjusted earnings of $5.90 to $6.20 a share. Analysts had expected $4.98 a share.
Hurlston said Lumentum won its second major order for near-packaged or co-packaged optics during the quarter, backed by purchase commitments of more than $5 billion. Co-packaged optics put the optical parts right next to the chip, instead of in a separate module at the edge of the server.
Marvell said its revenue for its fiscal third quarter came in line with its guidance. It kept the midpoint and narrowed the range to plus or minus 2%, from plus or minus 5%.
