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Why Marvell Technology Agreed to Acquire Cavium

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Terms of the deal

Chipmaker Marvell (MRVL) has planned to acquire its rival Cavium (CAVM) in a deal valued at about $6 billion—for $40 per share and 2.1757 of its common shares for each Cavium share.

The company would fund the buyout with available cash and debt. The deal has yet to obtain regulatory and shareholder approval, it has been approved by both shareholders. Marvell expects the Cavium deal to close in mid-2018.

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Cavium deal would benefit Marvell

Marvell is a dominant player in providing chips for hard disk drives. On the other hand, Cavium offers processors for server software. The deal between Marvell and Cavium could bring significant revenues, margins, and profit growth for both companies.

The deal could also create annual synergies of about $150 million–$175 million within 18 months of completing the deal. After the acquisition, Cavium’s shareholders would gain control of over 25% of the combined entity.

Apart from the financial benefits, the deal would help Marvell lower its dependence on the hard disk drive storage market, where the company has been facing challenges due to the availability of other data storage solutions.

The merger can also increase Marvell’s reach to the networking market. As a result, the deal could help the company diversify and widen its scale to newer markets in the rapidly consolidating semiconductor industry.

The Cavium deal could also give Marvell Technology access to the lucrative server microprocessor market, where Intel (INTC), Qualcomm (QCOM), and Broadcom (AVGO) are leading players.

Cavium had also made its space in the market in early 2017 when it announced that Microsoft’s (MSFT) Azure cloud platform would run on its ARM-based processors.

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