Marvell Technology Group Ltd stated that it would purchase its smaller competitor Cavium Inc for $6 billion, as Marvell works towards expanding its wireless connectivity business. In premarket trading on Monday, shares of Marvell were up 1 percent whereas shares of Cavium were up 7.7 percent to $81.70.
With this deal, Marvell has proposed $40.00 per share in cash and 2.1757 of its shares for each Cavium share. The exchange ratio was established on a purchase price of $80 per share, using Marvell’s unmoved price preceding November 3 when the media began reporting the possible deal. Marvell’s offer of $84.15 was based on the stock’s close on Friday which represents a premium of 11 percent to Cavium’s close on Friday.
“With Marvell facing secular challenges on its core chip business, this acquisition is a smart strategic move which puts the company in a stronger competitive position for the coming years,” said analyst Daniel Ives.
Marvell based in Hamilton, Bermuda manufactures chips for storage devices while Cavium based in San Jose, California manufactures network equipment. Marvell has been seeking to expand from its storage devices business since las year when Starboard Value LP called the company undervalued.
“This is an exciting combination of two very complementary companies that together equal more than the sum of their parts,” Marvell’s Chief Executive Matt Murphy said in a statement.
Marvell stated that it plans to pay for the deal with a mixture of cash on hand from the combined companies and $1.75 billion in debt financing. Goldman Sachs & Co LLC was the financial adviser to Marvell and Qatalyst Partners LP and J.P. Morgan Securities LLC were the financial advisers to Cavium.
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Earlier this month, chipmaker Qualcomm Inc turned down competitor Broadcom Ltd’s $103-billion takeover bid, one of the largest deals ever seen in the technology sector.