What happened: Marvell Technology (MRVL) shares fell more than 10% on Monday after the chip designer announced it will acquire optical component maker Lumentum (LITE) in a deal valued at $115 billion. The transaction would be the largest merger between two publicly traded companies on record. Lumentum shares also fell 15% following the announcement.
What’s behind the move: Lumentum stock tanked following the announcement as the deal’s all-stock structure leaves investors exposed to Marvell’s recent sell-off. Under the agreement, Lumentum shareholders will receive 4.5 shares of Marvell common stock for each share owned.
While that exchange ratio initially implied a valuation of $1,132 per share based on Oct. 28 prices, Marvell’s recent drop has steadily eroded the payout’s actual value.
The record-breaking agreement is expected to expand the combined company’s total addressable market to $550 billion, according to the announcement.
“AI infrastructure is undergoing a fundamental architectural shift toward optical connectivity, creating an opportunity that comes along once in a generation,” Matt Murphy, chairman and CEO of Marvell, said on Monday.
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698.50 -142.20 (-16.91%)
As of 3:00:43 PM EST. Market Open.
What else you need to know: The acquisition gives Marvell greater access to optical technologies and manufacturing capacity, which have become critical bottlenecks of the AI infrastructure build-out.
Lumentum makes lasers and other optical components as increasingly powerful AI systems require faster connections. Marvell, which competes with Broadcom (AVGO), designs high-speed infrastructure and custom chips that enable AI computers to communicate with one another.
Earlier this year, Marvell stock rallied sharply after AI chip heavyweight Nvidia (NVDA) CEO Jensen Huang described the chip designer as “the next trillion-dollar company.”
The company joined the S&P 500 (^GSPC) index in June. Marvell shares are up more than 120% year to date. Lumentum shares have rallied more than 100%.
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