Marvell agreed to buy Lumentum for stock worth $115 billion. The close is not until 2028

Marvell and Lumentum said on 2 November, from Santa Clara and San Jose, that they have a definitive agreement to combine, paid entirely in stock. Lumentum stockholders would receive 4.500 Marvell shares for each share they hold. The companies put the implied enterprise value at $115 billion, about $1,132 a Lumentum share, a premium of about 23.9 per cent to each company’s unaffected close on 28 October, the last session before speculation started. After closing, Marvell’s holders would own about 67 per cent and Lumentum’s about 33 per cent, fully diluted. Both boards approved the deal unanimously. Matt Murphy would stay chairman and chief executive. None of that has closed.

The date is the constraint. The companies expect to complete the transaction in the first half of 2028, and only with the approval of both sets of stockholders, with regulatory approvals, and with the other customary conditions. Reuters, reporting the same day, said the $115 billion includes debt. On Reuters’s calculation, using LSEG data, the price is about 33 times Lumentum’s projected core operating profit over the next twelve months, against a peer median of about 16 times. Reuters also reported the walk-away fees from the filing: Marvell would pay Lumentum $5.8 billion if its board drops the deal or accepts another offer, Lumentum would pay $2.9 billion in the mirror case, and Marvell would pay $3.2 billion if regulators block it. A fee for a deal that fails is not a fee for a deal that has succeeded.

The product argument is copper running out of distance

The reason the companies give is physical, and it is their reason. They say bandwidth is growing and copper is running into its limits, so the industry is moving to optical connections. The combination, they say, puts Marvell’s electrical and optical interconnect, its switching and its custom silicon next to Lumentum’s lasers, transceivers and optical circuit switches, for links between data centres, between racks, between chips, and inside packages. They call those scale-across, scale-out, scale-up and scale-in. Intended, in a release, is a portfolio on a whiteboard. It is not a transceiver that has been redesigned because the two companies already share a factory.

The financial promises are also expectations. The companies say the combination expands the addressable market to $550 billion, that they can see more than $1 billion of annual cost savings once the rate is fully in, that it should add to Marvell’s non-GAAP earnings per share in the first year after closing, and that it should improve long-term revenue growth and non-GAAP margins. Reuters reported the companies’ near-term forecast of more than $21 billion of annual revenue and adjusted operating margins in the low 40s. A forecast of a company that does not exist until 2028 is not a result. The agreement is the fact. The lasers and the chips are still in two companies.