Marvell-Cavium Deal Set To Close As HSR Waiting Time Expires

Marvell Technology Group Ltd. (NASDAQ:MRVL) yesterday announced that the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) related to its proposed acquisition of Cavium Inc. (NASDAQ:CAVM) expired last Friday. With this, the company moves a step closer to the closure of the aforementioned deal.

Notably, the companies entered into an agreement where Marvell agreed to acquire its smaller competitor Cavium in a cash-stock deal worth $6 billion. Per the agreement, Marvell will pay $40 per share and 2.1757 of its common shares for each Cavium share. This means, post buyout, shareholders of Cavium will own 25% of the combined company’s share. Marvell intends to fund the acquisition with available cash in hand and $1.75 billion in debt.

Why Cavium?

Marvell Technology is one of the leading providers of chips for hard disk drives. Meanwhile, Cavium offers software compatible processors that enable functionality in data-center applications, and network connectivity for server and switches. Therefore, the buyout is believed to provide Marvell Technology an opportunity to expand its offerings and access to newer market.

Furthermore, Cavium’s strategy of breaking into Intel Corporation’s (NASDAQ:INTC) potential hold on the server microprocessor market makes it the most feasible buyout for Marvell Technology, per a Bloomberg report. According to the report, Intel holds more than 99% market share in this space.

In fact, Cavium got a major breakthrough in the server microprocessor market in 2017 when it announced that Microsoft’s (NASDAQ:MSFT) Azure cloud platform will run on its ARM-based processors instead of Intel’s. Therefore, we believe the Cavium buyout will provide Marvell Technology a direct access to this lucrative market.

An Effort to Rebuild Itself

The latest deal is believed to be Marvell Technology’s one of the biggest toward rebuilding itself after the massive accounting scandal in late 2015 which plagued the company’s financial results throughout fiscal 2016. In fact, the company has overcome the previous headwinds and refurbished its senior management as well.

However, the new management has been facing several challenges in the form of sluggish growth rate in the hard disk drive market.

Under the leadership of Matthew J. Murphy (CEO), Marvell Technology seems to restructure its business to focus on growth segments like adding offerings in areas such as data centers and wireless communications, which are anticipated to bolster revenues.

The Cavium buyout is projected to be in line with the company’s aforementioned initiatives. We anticipate the acquisition will help lower its dependency on the hard disk drive market which is currently stagnant due to availability of other data storage solutions.

Marvell Technology has marginally outperformed the industry over the past year. While the stock has rallied 57.3%, the industry to which it belongs to has gained 48.5%.

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