$115 Billion Acquisition. Why Is Marvell Buying Lumentum?

In acquisitions, the target company’s shares usually rise because the buyer offers a premium. But in one of this year’s biggest tech deals, the exact opposite is happening. The buyer is down about 14%, and the target is down as much as 18%. What’s behind this, and why could this deal have a much broader impact than just on two companies?

Marvell Technology $MRVL announced today that it is acquiring Lumentum $LITE for about $115 billion. The all-stock transaction will give Lumentum shareholders 4.5 Marvell shares for each of their shares. Once the deal is complete, current Marvell shareholders will own 67% of the combined company, and Lumentum shareholders will own the remaining 33%.

The deal represents a 23.9% premium to the share prices before the first acquisition speculation. It is expected to close in the first half of 2028, subject to shareholder and regulatory approval.

The market has a problem with this deal

At first glance, the drops in both stocks may seem strange, since in a traditional acquisition the target usually rises toward the offer price. But the difference here is how the deal is being financed.

Marvell isn’t paying cash for Lumentum; it’s paying with its own shares. That means the offer value isn’t fixed at $1 132 per share, as stated in the announcement. That figure is based on share prices as of October 28. Lumentum shareholders are set to receive exactly 4.5 Marvell shares for each of their shares. So if a Marvell share is worth $200, the offer is worth $900. But if it falls to $170, the offer value automatically drops to $765. That’s why Lumentum is falling along with Marvell.

Marvell itself is under pressure amid concerns that it’s paying far too much for the acquisition. It will also have to issue a huge number of new shares, raising the bar for the combined company’s future profitability. Investors are also weighing the challenges of integration and regulatory risks.

Lumentum is falling even more because, in addition to the lower value of the stock offer, there’s uncertainty over whether such a large deal will actually close. It isn’t expected to close until 2028, and practically anything could change in the meantime. The market is clearly not yet convinced that this acquisition will create value commensurate with its price.

Marvell designs chips and networking technologies; Lumentum supplies lasers and optics

Marvell is one of the major semiconductor suppliers for AI infrastructure. It helps hyperscalers develop their own AI chips and also supplies network switches and technologies that enable fast data transmission between individual chips and servers.

Lumentum operates a layer below that. It makes high-performance lasers, optical modules, and other components that enable data to be transmitted using light. Its technologies are used by network equipment manufacturers and data center operators.

AI chips are becoming increasingly powerful, and data transmission between them is becoming a challenge

As the number of GPUs and AI accelerators grows, so do demands for communication speed, power consumption, and the distances over which data must be transmitted. Traditional copper connections are starting to hit physical limits at the highest speeds and over longer distances. That’s why optical technologies, which transmit data using light, are becoming increasingly prevalent.

But for these systems to work efficiently, powerful chips alone aren’t enough. You also need high-quality lasers, optical components, and the ability to design all these technologies so they work together. Marvell is gaining its own manufacturing capacity and technologies in an area that could become one of the biggest constraints on the further development of AI infrastructure.

Until now, different parts of the interconnect have been designed and manufactured by different suppliers. After the acquisition, Marvell will be able to combine chip design, electrical signal processing, optical technologies, and laser manufacturing into a single system. This could mean faster development, better energy efficiency, and a stronger position with customers looking for complete solutions.

Earlier this year, Marvell also acquired Celestial AI, a company focused on optical interconnects between AI chips. The Lumentum acquisition therefore fits into a broader strategy that the company has been building for some time. Management expects annual cost synergies of more than $1 billion and an expansion of its total addressable market to $550 billion.

When your competitor buys your supplier, you have to start looking for alternatives

Lumentum is currently an independent supplier of optical components to many companies across the AI sector. Once the acquisition is complete, however, it will become part of Marvell, which also competes with several of its customers. Consider, for example, AMD or a maker of custom chips that uses Lumentum lasers.

Suddenly, its supplier will belong to a company that may compete for the same customers. That raises questions about whether it will have the same long-term access to capacity, pricing, and technology—and how securely information about its future products will be kept separate.

That doesn’t mean Marvell will restrict supplies to competitors. Such a move could hurt Lumentum itself, too. But other companies may have a much stronger incentive to secure alternative suppliers. That matters because advanced laser manufacturing can’t simply be ramped up overnight. It requires specialized technologies, major investment, and lengthy customer approval processes for new components.

Nvidia’s move is also interesting. Back in March, it invested $2 billion in $LITE and another $2 billion in $COHR , while also securing future access to manufacturing capacity. It later invested another $2 billion in $MRVL. This shows how much strategic value the biggest players place on securing optical technologies and manufacturing capacity.

Which other companies could benefit?

Coherent $COHR is one of the most interesting names. It has a broad portfolio of lasers and optical technologies and remains an independent supplier. It could become an even more attractive partner for companies looking to reduce their dependence on Lumentum. However, some of its capacity is already committed through strategic agreements, including its collaboration with Nvidia.

Applied Optoelectronics $AAOI is another potential beneficiary of this trend. It makes optical components and high-speed transceivers. In August, it said it expected demand for its 800G and 1,6T products to exceed manufacturing capacity through mid-2027. If customers start diversifying their suppliers more aggressively, AAOI could win additional orders.

Then there’s smaller, riskier player Sivers Semiconductors. In September, the company announced a $30 million investment to expand laser manufacturing in the UK. Once complete, the expansion is expected to bring capacity to more than 100 million CW DFB lasers per year. The expanded capacity is expected to come online in the last quarter of 2027.

And companies like these could also be interesting acquisition targets. In-house manufacturing capacity is gaining strategic value that standard financial multiples may not fully capture.

Marvell is buying the right technology. The question is whether it has overpaid

Personally, I think this acquisition makes a lot of strategic sense. But it’s important to distinguish between buying a quality business and paying a reasonable price for it. Even if Lumentum continues to grow rapidly, that doesn’t mean the deal will create value for Marvell shareholders.

With an announced enterprise value of $115 billion and latest quarterly revenue of $1,26 billion, we’re talking about more than 22 times annual revenue. That’s an extremely high valuation that assumes strong growth will continue. And don’t forget that the actual value of the stock consideration changes along with Marvell’s share price.

Lumentum did increase revenue by about 136% year over year in the latest quarter, but even that kind of growth may not last forever. There’s also a risk that some customers will start looking for alternatives after the change in ownership, and the deal itself still needs regulatory approval.

There could be another consequence

If the biggest tech companies increasingly focus on owning critical parts of the supply chain, the value of the remaining independent manufacturers of lasers and optical technologies could rise further. That’s why I wouldn’t focus only on Marvell and Lumentum today, but also on who has real manufacturing capacity, who can expand it, and who could attract new customers. That’s where other opportunities may lie.