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Marvell is buying its competitor Chipmaker Cavium for About $6 Billion
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Marvell is buying its competitor Chipmaker Cavium for About $6 Billion

The chipmaker, Marvell Technology Group Ltd is in a bid to build itself a future outside of a waning area of the market. The company has agreed to buy Cavium Inc. for approximately $6 billion.

The company gave a statement on Monday in which it declared that it will pay $40 in cash plus 2.1757 Marvell common shares for each Cavium share.

The plan of Marvell is to use $1.75 billion in debt financing to support the transaction. After the decision, Cavium shares hit a record on Monday evening, while Marvell also rose up and gained.

The main business of Marvell is manufacturing of chips to manage hard disk drives. Now with advancement in technology, this field is declining and has no longer growing tempo as latest technology begins to take over data storage.

Networking processors are made up by Cavium and it is among one of several companies trying to utilize ARM Holdings Plc technology to smash into the server microprocessor market.

 Intel Corporation is the world’s largest chipmaker and has 99 percent share in the market with lead of the sector. So it’s pretty ambitious move by company.

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Kevin Cassidy, who is an analyst with Stifel Nicolaus & Co., put his remarks about this deal.

According to him, the deal was pricy but essential to help both companies to compete with the giants of the semiconductor industry, counting Intel, Qualcomm Inc. and Broadcom Ltd.,

Cost savings could save 10% to the combined company’s annual profit, he said.

On the other hand, the acquisition of San Jose, California-based Cavium is the biggest agreement for Marvell Chief Executive Officer Matthew J. Murphy, who took the role last year.

Murphy said in a statement “This is an exciting combination of two very complementary companies that together equal more than the sum of their parts,”

Although Marvell is based in Bermuda but it is run from Santa Clara, California. Marvell’s Murphy will lead the team and will head up the new company

The stock rate of Cavium jumped as much as 8.9 % to $82.60, a new high, while Marvell was up 1.8% to $20.65 at 9:41 a.m. in New York.

Now, Marvell is trying to restructure itself after a corporate scandal. In 2015 the company commenced an internal investigation to examine its accounting practices and found that some profits had been recognized too early.

The investigation also exposed that top management was forcing sales and financial departments to meet revenue targets and not succeed to raise concerns about former CEO Sehat Sutardja’s declaration of personal ownership of patents.

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