On Monday, Marvell (MRVL) agreed to buy Lumentum (LITE) in an all-stock transaction worth $115 billion. The deal values Lumentum's stock at $1,132 a share, according to a press release, representing a premium of approximately 23.9% to the share price as of Oct. 28.
Marek Mscichowski, a day trader who has a small position in Lumentum Holdings, is not a fan of the company's deal with Marvell Technology. "It's a trash offer," Mscichowski said.
Lumentum's stock fell by 18.6% on Monday and closed at $684.40 a share, making it the worst-performing stock in the S&P 500 SPX on the day. Shares of Marvell closed down 12.7% and have logged their worst three-day stretch since October 2000.
According to the press release, Lumentum shareholders will receive 4.5 shares of Marvell common stock for each share of Lumentum common stock they own. "It's kind of egregious," said Mscichowski, who expected a larger premium or even a cash component to the deal.
Mscichowski pointed out that the transaction is expected to close in the first half of 2028. "That's like 50 years in AI investing. Marvell stock could crash in that time," he noted.
The $115 billion implied deal value is based on Marvell's current share price, but the value of the deal will be lower if the company's stock remains under pressure.
Nigam Arora, founder of the the Arora Report, said some of the advisory firm's members who pursue short-term momentum trading strategies have been unloading Lumentum stock. "Now many of those momentum buyers are selling," Arora said. "It's understandable. Nobody likes losing money."
Arora also holds a long-term position in Marvell. He said he intends to add to that Marvell position with the goal of "taking advantage of the dip."
There's a risk that the deal could fall through, Needham analyst Ryan Koontz told MarketWatch, noting that Lumentum's board "still has some convincing to do" to get shareholders in agreement. "I think some folks have been questioning whether they can get the votes done to make it happen," he said.
Koontz said that while Lumentum management is making the case that there will be cost savings in the combined business operations involving semiconductors, data infrastructure and optical networking, he described it as a long-shot bet.
"How do you put two different businesses together and save a billion dollars on product costs that don't have much to do with each other?" he asked. While chip maker Marvell specializes in networking and switches, Lumentum specializes in fiber optics.
Victor Silva, a Marvell shareholder who goes by "Canadian Talking Stocks" on X, told MarketWatch that the short-term dilution of shares hurts current Marvell shareholders. "The deal isn't expected to close until the first half of 2028, so the stock could stay stuck that long," he said.
China regulatory hurdles
Marvell and Lumentum did not respond to MarketWatch's requests for comment. On Monday, both companies held a call with shareholders to make the case that the deal is a good one.
Marvell CEO Matt Murphy said that Lumentum's laser technology and Marvell's digital signal processors would together create advantages in the marketplace.
"We're just stepping on the gas, both companies collectively, on those two technologies, working directly with their own hyperscaler customers," Murphy said. "The ecosystem is going to be very healthy if you have the best products."
Cantor Fitzgerald analyst C.J. Muse said he had "mixed thoughts" on the deal and acknowledged various factors that could be worrying investors. One issue is the timing, and why Lumentum is willing to sell itself now. That gets at "implications of where we are in today's optical cycle," he noted.
Furthermore, it remains to be seen if the businesses will be able to maintain all their customer relationships once a deal is complete, according to Muse. Competitors to Marvell that sit outside the Nvidia (NVDA) web might shift business away from Marvell and Lumentum.
Then there's the fact that Lumentum and Marvell will need China's approval to close the deal. "We believe that China approval will be the biggest question mark," Muse wrote, as the companies expect regulatory approval to extend the timeline for the deal's close into the first half of 2028.
Analysts at Counterpoint Research flagged that optical networking is a hot topic within U.S.-China relations, with the Federal Communications Commission reportedly weighing restrictions on imports of Chinese optical transceivers, according to Reuters.
Against that geopolitical backdrop, Beijing has "every reason to take its time" on evaluating the deal, the Counterpoint analysts said.
William Blair analyst Sebastien Naji wrote of the "potential for Lumentum shareholders to vote down the deal, particularly if [Marvell shares] continue to see downward pressure." Additionally, "regulatory scrutiny could also lead to delays beyond the first half of 2028 deadline," he said in a note to clients.
-Hannah Pedone
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