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Marvell's (MRVL) Inphi Buyout on Track, Gets Shareholders' Nod

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Marvell Technology’s (MRVL - Free Report) deal to acquire Inphi Corporation reached the final stage yesterday with a key approval from shareholders of the former. Marvell noted that more than 99% of the stockholders voted in favor of the transaction during yesterday’s shareholders’ meeting. The company expects the deal to close on or around Apr 20.

Additionally, Marvell received shareholders’ nod for reorganization, such that the combined entity would be domiciled in the United States. Currently, the data infrastructure semiconductor solutions provider is domiciled in Bermuda for tax exemption purposes.

Inphi Takeover Deal

The two companies inked a definitive agreement in the last week of October 2020, under which Marvell agreed to acquire Inphi in a cash-and-stock deal worth $10 billion. Per the terms of the deal, Marvell will pay $66 per share in cash and 2.323 shares of stock for each Inphi share.

Following the deal’s closure, Marvell shareholders will own 83% of the combined company, while Inphi stockholders will own the remaining 17%.

The transaction got approval of the State Administration for Market Regulation of the People's Republic of China this March.

The acquisition proposal had also received a regulatory approval from the U.S. Federal Trade Commission, wherein the waiting period for a review of the transaction under the Hart-Scott-Rodino (HSR) Act expired last December.

Rationale Behind the Acquisition

Marvell plans to reorganize the combined company and domicile in the United States, creating a $40-billion semiconductor powerhouse. The transaction will broaden Marvell's leadership in data centers and extend its 5G network infrastructure. Inphi's growing presence with cloud customers will also open up additional opportunities for Marvell's DPU and ASIC products.

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," Marvell had stated in its Oct 29, 2020 press release.

The deal will likely generate annual run-rate synergies of $125 million to be realized within 18 months after the transaction‘s conclusion. It will also be accretive to Marvell's non-GAAP earnings per share by the end of the first year after the deal’s closure.

Consolidation Continues in Semiconductor Space

The Semiconductor industry is undergoing a massive consolidation wave. A huge number of mergers and acquisitions worth hundreds of billion dollars have taken place over the last few years.

Excluding the Marvell-Inphi transaction, the industry has witnessed three major mergers and acquisitions deals which have a combined worth of more than $95 billion. Last July, Analog Devices (ADI - Free Report) agreed to acquire Maxim Integrated Products in an all-stock deal worth $20.9 billion.

In September 2020, NVIDIA (NVDA - Free Report) entered into a definitive agreement to buy the U.K.-based Arm Holdings in a deal valued at $40 billion. Later in October, Advanced Micro Devices (AMD - Free Report) agreed to buy Xilinx for $35 billion.

Consolidation is natural in a mature industry like semiconductor which is now more than 60 years old. This industry is currently plagued with two huge challenges, which include escalating costs of producing chips for devices and a sluggish growth rate.

In such a scenario, semiconductor companies need to be huge in order to compete effectively. Therefore, these companies have resorted to mergers and acquisitions in an effort to grab more market share, cut costs, boost productivity and improve investment returns through scale economies.

Currently, Marvell carries a Zacks Rank #3 (Hold), while Inphi has a Zacks Rank of 4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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