Morgan Stanley: Marvell plans to acquire Lumentum at an enterprise value of 115 billion dollars, with a high bar for realizing synergies

How big is the deal, and when will it close?

Marvell plans to acquire Lumentum in an all-stock deal, with each Lumentum share exchanged for 4.5 Marvell shares. The deal represents an enterprise value of approximately 115 billion dollars and implies approximately 1132 dollars per share, a premium of 23.9% to Lumentum’s unaffected closing price on 28 October 2026.
After closing, Marvell and Lumentum shareholders are expected to own approximately 67% and 33% of the combined company, respectively. The deal is expected to close in the first half of 2028, subject to approval by both companies’ shareholders and regulators in the United States and China.

Lumentum has indium phosphide (InP) lasers, optical switching and manufacturing capabilities, while Marvell provides switching chips, digital signal processors (DSPs) and custom chips. The companies can co-design light sources and optical engines with switching chips and processors to improve performance, shorten qualification times and potentially increase the value of products used per connection.
Morgan Stanley believes that in existing data-center scale-out interconnects, customers can qualify switches and optical modules separately; in more tightly integrated scale-up computing interconnects, switches, optical engines and light sources need to be designed together and product roadmaps coordinated. The acquisition could also secure Marvell priority access to scarce InP capacity.
Lumentum’s second major NPO/CPO program is expected to begin shipping in the second half of 2027, with management expecting revenue from it to exceed 5 billion dollars; the company also expects its first CPO products for scale-up interconnects to ship before the end of 2027.

Management is targeting more than 1 billion dollars in annual run-rate synergies, mainly from cost of sales: incorporating one company’s products into the other’s solutions that previously used third-party components, thereby capturing the original suppliers’ margins.
But Lumentum is already a major Marvell customer, and existing transactions between the two companies are eliminated in the consolidated accounts. They will not generate additional profit and also reduce the scope for replacing third-party products.
Replacing components could also undermine Marvell’s supplier-neutral position: optical module makers that compete with Lumentum also buy Marvell DSPs and could switch to other suppliers. Management says it will continue to sell components across the ecosystem; Morgan Stanley sees next-generation DSP design wins during the deal’s waiting period as a key point to watch.

Assuming the deal closes in 2028, Morgan Stanley forecasts combined company revenue of approximately 71 billion dollars and non-GAAP earnings per share of 20.27 dollars in 2029. The model includes 700 million dollars in cost-of-sales synergies and excludes operating expense and revenue synergies.
The 20.27 dollars is approximately 3% above the 2029 consensus earnings-per-share estimate of 19.76 dollars, but below the bank’s standalone Marvell forecast of 21.55 dollars, making it slightly dilutive relative to its own baseline. The outcome depends on the performance of both companies, the pace of synergy realization and the timing of closing.
The bank believes Marvell’s past acquisitions of Inphi, Cavium and Avera provide positive precedents and that the recent share-price decline was excessive. It nevertheless maintains an equal-weight rating on Marvell, with a price target of 300 dollars.

The 115 billion dollars enterprise value is approximately 22 times Lumentum’s current quarterly revenue annualized. Morgan Stanley says historical optical communications acquisitions generally valued targets at approximately 2 to 11 times trailing 12-month revenue, although most targets were smaller and less closely tied to AI infrastructure.
Lumentum’s gross margin in the first quarter of fiscal 2027 was 53.2%, above its previous target range of 49% to 52% at an annualized revenue level of 8 billion dollars. The bank believes returns on the acquisition would come under pressure if margins, boosted by pricing and tight capacity, fall before closing.
Lumentum’s capital expenditure in fiscal 2026 was approximately 15% of revenue, versus the mid-to-high single digits for Marvell; a new factory could also require an investment of approximately 650 million dollars. The combined company will therefore bear greater manufacturing fixed-cost and working-capital risks. Chinese companies supply approximately 60% to 65% of optical transceivers, and deal approval also involves whether customers can continue to obtain Marvell’s DSPs.