Author | Asher (@Asher_0210)
A $100 billion AI acquisition resulted in both companies' stock prices plummeting.
Last night, Marvell (NASDAQ: MRVL) announced its intention to acquire Lumentum (NASDAQ: LITE) at a premium of nearly 24%, but the market did not respond favorably. According to MSX.COM data, as of the close of U.S. trading, Marvell fell 11.2%, while Lumentum, the target company, dropped even further by 18.11%.
According to the joint announcement, Marvell will acquire Lumentum in an all-stock transaction, implying an enterprise value of approximately $115 billion for Lumentum. Lumentum shareholders will receive 4.5 shares of Marvell common stock for each share of Lumentum stock they hold.
Marvell hoped to combine both companies' technologies in chips and optical communications to enable faster and more energy-efficient data transmission within AI data centers, capitalizing on the opportunities brought by the expansion of AI infrastructure. However, why did the stock prices of both companies decline despite the premium acquisition?
Why does the target company's stock also plummet in a premium acquisition?
Lumentum shareholders received Marvell shares, and as Marvell’s stock price declined, the value they received also decreased. In this transaction, each Lumentum share entitles holders to 4.5 Marvell shares—a fixed quantity with no locked-in value. This means that even with the acquisition announcement, Lumentum’s stock price remains pressured by Marvell’s downward movement.
The nearly 24% premium also does not represent the profit potential left for investors after the announcement. The announcement used the closing prices of both companies on October 28, before any acquisition rumors had emerged. On that day, 4.5 shares of Marvell were worth approximately $1,132, about 23.9% more than one share of Lumentum. Since then, the stock prices of both companies have fluctuated, causing the actual value of this share exchange transaction to change as well; thus, the so-called premium does not guarantee any profit.
Marvell shareholders are concerned about whether this acquisition is worthwhile. After issuing new shares, existing shareholders’ ownership stake in the combined company will drop to approximately 67%. Although the company gains Lumentum’s business, existing shareholders may not benefit if the additional profits do not keep pace with the increase in shares outstanding. According to Reuters, the transaction price, financing risks, and rising investments in AI infrastructure have all drawn investor attention. What truly matters to shareholders is how much profit each share will generate after the expanded scale of operations.
Marvell is focused on the demand for connectivity between AI chips.
Marvell is willing to acquire Lumentum at a premium, drawn by the growing demand for data transmission in AI data centers. As more chips work together, the volume of data exchanged between them is increasing. If transmission speeds cannot keep pace, the additional computing power cannot be fully utilized. Both companies noted in their announcement that rising bandwidth demands and the physical limitations of copper connections are driving greater adoption of optical connections in AI infrastructure. Enhancing the speed and energy efficiency of data transmission represents a shared opportunity for both companies to win orders.
Marvell and Lumentum control different technologies along this supply chain: Marvell provides chips, high-speed data connectivity, and networking switching technologies, while Lumentum specializes in lasers and optical communication components. Combining the two companies offers the opportunity to align chip and optical component design from the earliest stages, reducing the integration efforts required when customers combine products from different vendors. Lumentum’s laser manufacturing capabilities can also be integrated with Marvell’s chip design and packaging technologies to enable the development of new products.
By acquiring Lumentum, Marvell aims to offer AI data center customers a more comprehensive product portfolio and engage earlier in the design of next-generation systems. If the combined solution enables faster, more energy-efficient, and easier-to-deploy data transmission, Marvell stands to secure more orders.
Buying growth expectations at hundreds of billions of dollars—how long until returns?
Both parties expect that by 2030, the combined company could operate in a market sized at $550 billion. This figure encompasses the existing businesses of both companies, as well as new areas that may be unlocked through the integration of their technologies. However, market size alone does not determine profitability—product offerings, orders, and competition are critical factors. The $550 billion figure illustrates potential growth, but it does not directly answer whether this acquisition is worthwhile.
More specific commitments come from cost savings and profitability. Marvell expects to achieve over $1 billion in annual cost savings post-merger and to increase adjusted earnings per share in the first year following the transaction’s completion. If realized, this would mean the company could increase profit per share even after issuing new shares. However, cost savings take time, and integration efforts in R&D, manufacturing, and products will incur expenses—the ultimate outcome will depend on actual operational performance.
The transaction is expected to be completed in the first half of 2028, subject to shareholder approvals from both parties and regulatory clearances. More than a year of waiting could lead to significant changes in AI demand, market sentiment, and Marvell’s stock price. For Lumentum shareholders who do not wish to wait or ultimately receive Marvell shares, selling and exiting upon the announcement of the acquisition may be more appealing. While Marvell is willing to pay a premium for future growth, the market may not be willing to bear the risk of such a prolonged wait.