On November 3, B.Riley downgraded optical communications equipment maker Lumentum (LITE) from Buy to Neutral, while slashing its price target from $1,142 to $770.
The firm believes that with Lumentum reaching an all-stock acquisition agreement with Marvell Technology (Marvell), the stock's upside potential will be constrained by the terms of the deal.
Based on Lumentum's latest share price of $684.40, the new price target implies roughly 12.5% potential upside.
Under the acquisition agreement, Marvell will acquire Lumentum in an all-stock deal with an implied enterprise value of approximately $115 billion, and each Lumentum share held by shareholders will be exchanged for 4.5 Marvell shares.
Based on the share price on October 28, the acquisition consideration equates to approximately $1,132 per Lumentum share, representing a premium of about 24% over its closing price unaffected by the deal news.
However, because the exchange ratio is fixed, Lumentum shareholders will directly bear the risk of Marvell's share price fluctuations before the transaction closes.
B.Riley noted that based on Marvell's current share price of approximately $171 and the 4.5x exchange ratio, each Lumentum share corresponds to a value of about $770, and therefore adjusted its price target to that level.
The transaction still requires approval from Lumentum shareholders and relevant regulatory authorities, and is expected to be completed in the first half of 2028.
After the transaction closes, Lumentum's existing shareholders are expected to hold approximately 33% of the combined company.
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