Marvell Technology Group Ltd. (MRVL - Get Report) CEO Matt Murphy denied that his company's $6 billion purchase of fellow chipmaker Cavium Inc. (CAVM) was driven by another high-profile semiconductor deal, during a Monday investor call.
"This transaction is many, many months in the making," he told investors, while acknowledging that reports of the deal coincided with Broadcom Ltd.'s (AVGO - Get Report) bid to buy rival Qualcomm Inc. (QCOM - Get Report) for $130 billion including debt. "It's interesting, and sort of coincidental that when the leak occurred in the media about this potential combination it was the same day that Broadcom and Qualcomm reports also surfaced," he said.
Shares of Marvell, which is a holding of Jeff Smith's Starboard Value, bounced around after the news, but traded up 2.3% at $20.76 late Monday morning.
Cavium gained 6.9% to $81.09, exceeding the $80 per share value of the offer based on the value of Marvell stock before news of the deal broke. The price includes $40 in cash and 2.1757 Marvell common shares.
While Broadcom's bid for Qualcomm may not have sparked the talks between Marvell and Cavium, the consolidation among semis is clearly a factor.
"You grow or die in this industry," said Gary Mobley of The Benchmark Co. LLC.
Broadcom has made an unsolicited bid for Qualcomm, which is trying to buy NXP Semiconductors NV (NXPI - Get Report) for $47 billion. Broadcom was formed in February 2016 by the $37 billion merger with Avago Technologies Ltd., which acquired LSI Corp. for $6.6 billion in 2013. In 2015, Intel Corp. (INTC - Get Report) paid $16.7 billion for Altera Corp. and NXP acquired Freescale Semiconductor Inc. for $11.8 billion.
In addition to scale, the analyst suggested that Cavium would help Marvell adjust to trends in IT technology. "Networking is moving to the cloud, application software is moving to the cloud, storage is moving to the cloud and everything is moving to the data center," Mobley said. "Marvell didn't have much exposure to the data center market. Cavium gives them that exposure."
The acquisition comes roughly 1.5 years after activist Starboard Value's Jeff Smith succeeded at installing three dissident directors onto Marvell's board, including a managing member at the insurgent fund, Peter Feld. One of the dissident-backed directors, Richard Hill, has a track record of pushing companies to the auction block.
Hill quickly became Marvell's chairman, which observers had suggested indicated that the company could be sold, perhaps to Irvine, Calif.-based Western Digital Corp. (WDC - Get Report) or Dublin-based Seagate Technology plc (STX - Get Report) . Nevertheless, Marvell's share price spiked in recent months and now the Cavium acquisition suggests that a sale of the company is unlikely.
"There are only so many potential acquirers out there remaining for a company of Marvell's size," Mobley said. Broadcom and Qualcomm are occupied at the moment. That could leave Intel or a foreign suitor.
"I would view Marvell being more a hunter versus the hunted going forward," he said, suggesting that Mellanox Technologies Inc. (MLNX - Get Report) could interest Marvell. Shares of Mellanox, which has a $2.5 billion market cap and develops technology to boost data center efficiency, gained 1.1% to $50.60 on Monday.
—Ronald Orol and Micheal Brown contributed to this report
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