Marvell Technology has agreed to acquire high-speed data company Inphi in a $10 billion cash-and-stock deal to boost its 5G infrastructure and cloud data center networks.
Under the terms of the agreement, Inphi shareholders will receive $66 in cash and 2.323 shares of stock of the combined company for each Inphi share. Upon deal closure, Marvell (MRVL) shareholders will own 83% of the combined company and Inphi stockholders the remainder. The enterprise value of the combined US semiconductor company is about $40 billion.
“Our acquisition of Inphi will fuel Marvell’s leadership in the cloud and extend our 5G position over the next decade,” said Marvell CEO Matt Murphy. “Inphi’s technologies are at the heart of cloud data center networks and they continue to extend their leadership with innovative new products, including 400G data center interconnect optical modules, which leverage their unique silicon photonics and DSP [digital signal processing] technologies.”
Murphy expects Inphi’s growing presence with cloud customers, which include Amazon, Microsoft and Google, to also lead to additional opportunities for Marvell’s DPU [data processing unit] and ASIC [Application Specific Integrated Circuit] products.
Marvell said that it plans to finance the transaction with cash on hand, and additional financing. The chip supplier has obtained debt financing commitments from JPMorgan Chase Bank. The deal is not subject to any financing condition and is expected to close by the second half of 2021, pending the approval of both Marvell and Inphi shareholders.
In a move to remain competitive, the chip industry has seen some consolidation with a flurry of large deals being announced over the past couple of months. Last week, Advanced Micro Devices sealed a deal to snap up rival chip maker Xilinx for $35 billion. Notably are also Nvidia’s recent Mellanox acquisition and takeover of UK-based chip designer Arm for a whopping $40 billion.
MRVL shares, which have plunged more than 9% over the past 5 days, are up 41% so far this year. The stock still scores a Strong Buy analyst consensus with 19 Buys versus 5 Holds. What’s more, the average analyst price target of $47.36 indicates another 26% upside potential lies ahead over the coming year.
Commenting on the merger announcement, Needham analyst Quinn Bolton reiterated a Buy rating on the stock with a $47 price target, saying that he expects the deal to be modestly accretive to Marvell’s CY22 NG EPS and the combined company to earn $1.80 of NG EPS in CY22 vs. $1.75 for standalone MRVL.
“Strategically, we like the deal as it will bring Inphi’s market leadership position in the data center connectivity market to Marvell, where historically it has had a smaller presence,” Bolton wrote in a note to investors. “With Marvell suspending its repurchase program until 12-months post close, the effect of an increasing share count over the next two years results in mild dilution to our EPS estimates for core Marvell.” (See MRVL stock analysis on TipRanks)