Chip-making company Marvell Technology Group Ltd is set to invest outside the chip industry which it considers as declining. The company has agreed to acquire Cavium Inc. in a deal that is reported to be around $6 billion. This was revealed by a source that is close to the transaction.
The deal will involve both cash and acquisition of stock, according to the source who prefers to remain anonymous. The two companies are set to announce the deal later today. Reuters had earlier reported an agreement between the two chip-making companies.
Marvell at the moment is trying to rebuild itself after the corporate scandal that hit the company. The scandal led to the impeachment of the founders who came under intense pressure from activist investor Starboard Value LP. The company became popular with manufacturing chips that control hard disk drives. They are trying to expand their current market is no longer growing due to the emergence of cloud storage technology.
Cavium would be the biggest deal to be brokered by Marvell CEO Matthew J. Murphy who assumed this position last year. Cavium is a chipmaker that manufactures network processors. The company is one of the many that are looking to ARM Holdings Plc. technology to finally break the dominance of Intel Corp on the microprocessor market. That will take a while though as Intel still controls 99% of the market share.
When contacted about the latest development, Marvell and Cavium didn’t immediately respond to phone calls and emails due to the fact that they were contacted after business hours.
The deal is another move that will strengthen the already strong $300-billion semiconductor industry. Chipmakers have been merging at a record pace as they look to deal with the issue of rising costs and a reducing customer list. The biggest proposal over the past two years was the recent Broadcom offer to purchase Qualcomm in a deal worth over $100 billion. Qualcomm rejected the proposal though.
So far this year, the shares of Marvell had gone up by 46%, with the company now having a market cap of roughly $10 billion. Amongst its client list includes, Western Digital Corp., Toshiba Corp., and Samsung Electronics Co.