The Marvell-Lumentum Tie-Up Makes Strategic and Financial Sense

The market chatter has been confirmed, Marvell (MRVL) has made a play for Lumentum (LITE).

In our opening comments this morning, we reiterated the view we shared last week that such a move by Marvell has several merits. With the deal now being announced, let’s review what we know and explain why Marvell shares are now back on our shopping list, and what the plan is with LITE shares in the EPS All-Stars basket.

What Do We Know?

The question to us was how much Marvell would look to pony up to acquire Lumentum, and now we know. Lumentum stockholders will receive a fixed exchange ratio of 4.500 shares of MRVL common stock for each share of Lumentum common stock they own at the time of the closing. Ahead of today’s market open that put the offering around $1,132 per Lumentum share, and it also means that post transaction Marvell’s share count will be around 1,319 million shares or so. While no closing date was shared, the chatter suggests it is likely to close during the first half of 2028, which seems a bit long to us.

But here’s the thing, when we look at next year’s consensus revenue and net income figures for the two companies we find the following per Visible Alpha:

Marvell: $19.1 billion in revenue, $6.74 billion in net income

Lumentum: $10.1 billion in revenue, 3.77 billion in net income

Combining those net income figures we see a rough total near $10.5 billion, which is before any potential synergies and includes the revenue and profits associated with each counting the other as a customer. Dividing that rough net income figure by Marvell’s adjusted post deal share count of 1.319 million kicks out a rough EPS figure near $7.48.

That’s above the current consensus EPS figure of $7.33 Wall Street has for Marvell.

If we do the same analysis on the fiscal years for the two companies that line up against calendar 2028, we see pro forma net income of $13.8 billion on ~$44 billion in revenue and EPS near $10.50 compared to the current consensus calendar 2028 EPS figure of $10.28 for Marvell.

During this morning’s earnings call that featured Marvell and Lumentum management, more than $1 billion in run-rate synergies, primarily from cost of goods sold were identified. Tying back to our comment about the two serving each other as suppliers, the main source is supplying content to each other’s solutions that currently comes from third parties. When asked about what percentage of the synergies is cost-based. CFO Dan Durn did not give one, and no timeline for reaching the run rate was given. Joint engineering is expected to bring lower power, larger link budgets and better performance at each speed generation.

The other figure from the earnings call to note is that on a combined basis, the total addressable market for the combined entity is, per the team, around $550 billion by 2030. That includes about $60 billion of incremental TAM that management says comes from the combination.

Reading Through the Lines and What It Likely Means

Yet, LITE shares are trading off, which means the market is not thrilled with the deal. By that we mean, because most deals are expected to be somewhat dilutive in the first year or so, the read through is that Marvell’s offering price could have (should have) been higher. In our note last week, we shared that multiples for deals in the chip and networking space spanned between eight-times to 14-times revenue. We also suspect the market was expecting more given that Marvell paid around 14.6-times trailing revenue for Inphi a few years ago.

In that same note last week, we also noted that Marvell and Lumentum are customers of the other, and without knowing the exact or even a rough cut of those figures, we and the market are making some assumptions. Think of it this way, Marvell is not likely to pay up for the revenue and profits it is funneling into Lumentum.

Because the transaction is based on a fixed exchange ratio of MRVL shares for LITE ones, the stock to watch is MRVL. As its shares trade lower, so too does the implied transaction value for Lumentum, and that means more than likely the deal will be one that is followed closely by arbitrage traders.

To us this means that Marvell will need to reinforce its message about the combined market opportunity, synergies and accretive nature of the deal. It also means it will need to deliver on its quarterly results to keep the stock up.

Marvell Reaffirms Guidance

That likely explains why Marvell management also reported preliminary revenue for its Q3 2026. The top line was consistent with previously provided revenue guidance of $3.15 billion but the company also narrowed the expected range to plus or minus 2%, compared with the original range of plus or minus 5%.

Marvell is expected to report its quarterly results for its October quarter around December 1, and at that time we’re likely to get more clarity on the deal and its synergies. We could also get another crack at multi-year guidance. During Marvell’s early October Investor Day, it outlined $20 billion in fiscal 2028 revenue and shared a fiscal 2031 target of $70 billion-$90 billion and $30+ in EPS. Baked into that guidance was more than $12 billion in custom compute business by fiscal 2029.

Marvell Shares

The above is bringing more pressure on MRVL shares despite the positive implications of the two companies coming together. While the market may not be thrilled with the amount implied by Marvell’s offer, as shareholders, the deal makes strategic sense to us and it speaks to our view about the importance of networking as the creation and consumption of data continues to explode higher.

For us that means, letting the transaction details wash over MRVL shares, and assess where and when we’d be inclined to put more capital to work in them. The accretive nature of the transaction discussed above helps us think through the stock gyrations as does the likelihood Wall Street analysts will focus on the power of the combined company.

But as we noted in our opening comments this morning, we have a few inflation readings to get through in the next few days as well as the outcome of the midterms. For now, we’ll say that we’re placing MRVL shares back our shopping list and we’ll be watching them like a hawk as we move through the events of the coming days.

Lumentum and the EPS All-Stars Basket

The other question that some may be asking is what does this mean for LITE shares in the EPS All-Stars basket?

It’s a fair question given that the only time we may intervene in the basket’s line-up is when a M&A transaction happens, and this move by Marvell qualities as one.

However, LITE shares will be around for some time given the transaction isn’t expected to close until mid-2028.

There is also the math that shows that at Marvell’s current share price, each LITE share would be worth around $841 vs. the current $754 LITE share price.

While this would suggest meaningful upside in LITE shares, the rules and regs of the model prohibit any intra-quarter buying.

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At the time of publication, TheStreet Pro Portfolio was long LITE, MRVL.