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Marvell Issues $1B Senior Notes Offerings for Cavium Buyout

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Marvell Technology Group Ltd. MRVL recently announced the pricing of its public offering of $1 billion aggregate principal amount of senior notes. The notes have been issued in two parts of $500 million each, of which one part carrying a coupon rate of 4.2% will mature in 2023 and the second part having an annual interest rate of 4.875% will expire in 2028.

Investment firms, which are acting as joint book-running managers, include Goldman Sachs & Co. LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Capital Inc., HSBC Securities (USA) Inc., MUFG Securities Americas Inc., and Wells Fargo Securities, LLC. The offerings are anticipated to close on or about Jun 22.

The recently-announced senior notes offering will be solely used to partly fund the cash consideration of its previously-announced acquisition of Cavium Inc. CAVM. Notably, Marvell entered into an agreement to acquire its smaller competitor, Cavium, last November. The transaction, which involves a mix of cash and stock, was valued at approximately $6 billion.

Per the agreement, Marvell will pay $40 per share and 2.1757 of its common shares for each Cavium share. This implies, post buyout, shareholders of Cavium will own 25% of the combined companies share. At the time of agreement, Marvell revealed that it intends to fund the acquisition with available cash in hand and $1.75 billion in debt.

It should be noted that the company’s balance sheet did not carry any long-term debt as of May 5, 2018. Moreover, Marvell had ended first-quarter fiscal 2019 with cash, cash equivalents and short-term investments of $1.879 billion.

Therefore, the rest of the cash needed to fund the Cavium acquisition will be fulfilled with the available cash in hand and by availing a new term loan facility. Notably, during the acquisition agreement, Marvell had stated that it got “commitments consisting of an $850 million bridge loan commitment and a $900 million committed term loan from Goldman Sachs Bank USA and Bank of America Merrill Lynch.”

The buyout deal is believed to be one of the biggest steps of Marvell toward rebuilding itself after the massive accounting scandal in late 2015 that dampened its financial results throughout fiscal 2016. In fact, the company has overcome its prior headwinds and refurbished the senior management as well.

However, the new management has been facing a challenge in the form of sluggish growth prospects in the hard disk drive market.

Under the leadership of Matthew J. Murphy (CEO), Marvell Technology seems to restructure its business to focus on growth segments like adding offerings in areas such as data centers, and wireless communications, which are anticipated to boost revenues.

The Cavium buyout is projected to be in line with the company’s aforementioned initiatives. We expect the acquisition to help lower its dependency on the hard disk drive market, which is currently stagnant due to availability of other data storage solutions.

Marvell Technology Group Ltd. Price

Marvell Technology Group Ltd. Price | Marvell Technology Group Ltd. Quote

Marvell currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some other top-ranked stocks in the broader technology sector are Mellanox Technologies MLNX and NVIDIA NVDA, all sporting a Zacks Rank of 1.

The long-term expected EPS growth rates for Mellanox and NVIDIA are 15% and 10.3%.

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