Marvell Technology's planned acquisition of Lumentum has helped erase more than $91 billion in their combined market value. But the selloff alone may not derail the deal.
Investors haven't been shy about their discontent with Marvell Technology's planned acquisition of Lumentum, and even Barron's argued that the valuation of the deal coupled with the artificial-intelligence trade coming under significant pressure were serious concerns.
Lumentum stock tumbled nearly 19% on Monday and logged its largest daily percentage decline since April 3, 2025. It wasn't much better for shares of Marvell, which fell 13% to $171.41, marking their lowest closing price level since July 29.
Between Oct. 28, the day before Bloomberg reported the two companies were discussing a merger, and the closing bell on Monday, Lumentum lost $20.80 billion in market value while $70.36 billion was wiped out from Marvell.
Put it together and the two stocks have shed more than $91 billion in market capitalization since Oct. 28. That's quite a signal that Wall Street isn't too pleased.
The selloff has also called into question the valuation of Marvell's all-stock offer. At Oct. 28 prices, the acquisition implied an enterprise value of $115 billion for Lumentum and consideration of roughly $1,132 per share -- a 24% premium to Lumentum's closing price of $913.95 that day.
Lumentum shareholders will receive a fixed 4.5 Marvell shares for each Lumentum share.
That raises the question: Could one of the companies decide to pull the plug on the deal? It still requires approval from both companies' shareholders and regulatory clearances, and is expected to close in the first half of 2028.
A Morgan Stanley analyst team led by Joseph Moore and Meta Marshall noted Tuesday that another concern is that the deal also needs Chinese approval, and that China-based module makers, which buy Marvell's digital signal processors and compete with Lumentum, account for most transceiver supply.
There were murmurs even before Monday that maybe the deal could fall through.
Gordon Haskett analyst Don Bilson said in a research note that if Marvell and Lumentum hadn't announced their merger news Monday "it would have led to some head-scratching in these parts."
"More specifically, it would have had us wondering whether MRVL got cold feet over the weekend after seeing its stock fall 13% on Thursday and another 10% on Friday," Bilson said.
For now, it looks unlikely that either company will walk away from the deal even with significant market value being wiped out.
Lumentum would owe a $2.9 billion termination fee if, among other things, it accepts a superior proposal, according to regulatory filings. Marvell would owe Lumentum $5.8 billion in specified circumstances, including terminating the agreement to accept a superior proposal. A separate $3.2 billion fee would apply in certain regulatory-related terminations, according to regulatory filings.
B. Riley analyst Dave Kang said these termination fees both make a "competing bid unlikely" and partly cushions Lumentum shareholders if the deal falls apart. Kang downgraded Lumentum to Neutral from Buy on the acquisition and cut his price target to $770 from $1,142.
"Because the exchange ratio is fixed, LITE holders now carry MRVL share-price risk until close," Kang said.
After the sharp share price declines on Monday, stock market sentiment appeared to be turning somewhat on Tuesday.
Lumentum rose 0.4% to $687.30 on Tuesday while Marvell declined 0.5% to $170.86.
Some analysts argue that the merger, even with the risks, makes strategic sense for AI infrastructure.
"We like the strategic combination," Oppenheimer analyst Rick Schafer said in a research note in which he reiterated his Outperform rating on Marvell with a price target of $425.
Schafer said the merger "creates the leading AI connectivity pure-play" and brings Marvell's broad platform that includes digital signal processors together with Lumentum's high-power and high-speed lasers.
That would make the combined company a formidable force in the optical-networking sector, which has become integral to both the AI trade and the data-center buildout.
Marvell and Lumentum have said the combined company's total addressable market is likely to expand to around $550 billion as the merger brings together two of the largest players in optical networking.
But that too makes it an implicit bet on the data-center buildout continuing. Ever-larger data centers require optical transceivers to efficiently transfer data by converting electrical signals into light. Marvell makes the digital signal processors within those transceivers, while Lumentum produces lasers and other components.
"We believe core customers and partners also like the combination as integration and co-design become increasingly critical," Schafer added.
StoneX analyst Cody Acree agreed with this analysis. Acree reiterated Buy ratings on both Lumentum and Marvell along with price targets of $1,200 and $375, respectively.
"The industrial logic is sound," Acree said in the research note.
The analyst outlined how Lumentum makes indium phosphide lasers that generate the light in AI optical links, describing that capability as the "scarcest element in the chain."
"Together they come closest to Broadcom's integrated optics position, and co-design matters most as optics move inside the rack for scale-up," Acree added.
Raymond James analyst Simon Leopold also sounded an optimistic tone, upgrading Lumentum to Strong Buy from Outperform following the merger announcement. The analyst also raised his price target to $1,328 from $1,036 as he called the stock market's response to the merger an "overreaction."
Still, Wall Street is divided, caught between the significant potential that the combined company could have and the inherent risks.
"The strategic logic is sound, but the price leaves little room for error," Morgan Stanley analysts Moore and Marshall said.
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