Marvell Technology (MRVL) should benefit from a proposed acquisition of optical components maker Lumentum (LITE) that would extend its reach from chips to lasers, with the strategic rationale outweighing concerns around deal timing and potential integration challenges, RBC Capital Markets said.
The company announced the all-stock deal Monday, valuing Lumentum at about $115 billion, with Lumentum shareholders receiving 4.5 Marvell shares for each share held and ending up with about 33% of the combined company. The deal is expected to close in H1 2028, according to the note.
Marvell's management sees $60 billion in incremental total addressable market opportunity from the deal and more than $1 billion in annual cost synergies, mainly in production, and expects the acquisition to add to non-GAAP earnings per share in the first year after closing, RBC added.
Regulatory hurdles and a timeline of more than 12 months to close are key risks, but Marvell has a strong record of integrating acquisitions. The investment firm expects it to scale back Lumentum's lower-margin optical module business over time.
RBC maintained its outperform rating on Marvell and cut its price target to $250 from $425, citing potential deal overhang and a recent contraction in sector valuations.
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