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ETFs to Gain as Marvell's Inphi Buyout Creates $40B Giant

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The semiconductor space has been heating up with a flurry of deals. The latest is Marvell Technology (MRVL - Free Report) , which has agreed to acquire Inphi (IPHI - Free Report) for $10 billion in a cash-and-stock deal. It marks the second acquisition in the semiconductor space this week, following Advanced Micro Devices’ (AMD - Free Report) $35 billion acquisition of Xilinx (XLNX - Free Report) .

Deal in Focus

Per the terms of the deal, Marvell will pay $66 in cash and 2.323 shares of stock for each Inphi share. Following the closing of the transaction, Marvell shareholders will own 83% of the combined company and Inphi stockholders will own 17%. The chipmaker plans to reorganize the combined company and domiciled in the United States, creating a $40 billion semiconductor powerhouse.

The transaction will broaden Marvell's leadership in data centers and extend 5G network infrastructure. Inphi's growing presence with cloud customers will also lead to additional opportunities for Marvell's DPU and ASIC products (read: Here's Why Cloud Computing ETFs Are Hot Right Now).

Marvell is a leader in infrastructure semiconductor products, while Inphi makes high-speed data movement systems. “Combining Marvell's storage, networking, processor, and security portfolio with Inphi's leading electro-optics interconnect platform, will position the combined company for end-to-end technology leadership in data infrastructure," the companies said.

The deal, which is expected to close in the second half of 2021, would generate annual run-rate synergies of $125 million to be realized within 18 months after the transaction closes. It will also be accretive to Marvell's non-GAAP earnings per share by the end of the first year after the transaction closes. The transaction is pending for shareholder and regulatory approvals.

Market Impact

Following the merger announcement, shares of Inphi jumped 26.7% to close the day and crushed its average volume as nearly 13 million shares moved hands compared with 1.1 million on average. Meanwhile, shares of Marvell were down 3.3%. This has put the spotlight on some ETFs, which could be the best ways for investors to tap the opportunity arising from the proposed Marvell-Inphi deal. Investors should keep a close eye on the movement of these ETFs over the coming weeks.

First Trust Nasdaq Semiconductor ETF (FTXL - Free Report)

This fund offers exposure to the most-liquid U.S. semiconductor securities based on volatility, value and growth by tracking the Nasdaq US Smart Semiconductor Index. Holding 30 stocks in its basket, Marvell Technology is the top firm accounting for 8.9% share while Inphi takes 1.6% allocation. FTXL has accumulated $54.7 million in AUM and trades in average daily volume of 10,000 shares. It charges 0.60% in expense ratio and has a Zacks ETF Rank #1 (Strong Buy).

iShares PHLX Semiconductor ETF (SOXX - Free Report)

This ETF offers exposure to 30 U.S. companies that design, manufacture and distribute semiconductors by tracking the PHLX SOX Semiconductor Sector Index. Of these, MRVL and IPHI accounts for 3.3% and 0.7% share, respectively. The fund has amassed $3.6 billion in its asset base and charges a fee of 46 bps a year. It trades in a solid volume of 532,000 shares and has a Zacks ETF Rank #1 (read: 5 Reasons to Buy Semiconductor ETFs).

SPDR S&P Semiconductor ETF (XSD - Free Report)

This fund tracks the S&P Semiconductor Select Industry Index, holding 37 stocks in its portfolio. Both MRVL and IPHI accounts for nearly 3% share each. XSD has amassed $581.5 million in its asset base while trades in average daily volume of about 65,000 shares. It charges 35 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a high risk outlook.

VanEck Vectors Semiconductor ETF (SMH - Free Report)

This ETF has AUM of $3.1 billion and average daily volume of about 2.6 million shares. The fund provides exposure to 25 global semiconductor securities by tracking the MVIS US Listed Semiconductor 25 Index. Marvell Technology makes up for 2.2% of the assets. While the American firms dominate the fund’s holdings with 76.8% the assets, Taiwan (11%), the Netherlands (9.3%) and Switzerland (3%) takes the next three spots in terms of country exposure. The fund has an expense ratio of 0.35%. It has a Zacks ETF Rank #1 with a High risk outlook (read: ETFs to Gain on Growing Viability of Cryptocurrencies).

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