After a long period of uncertainty, it seems that Marvell (NASDAQ:MRVL) is finally getting on the right track of recovery and putting the sale process into gear. The company has seen some tough times lately, including an internal probe, an SEC investigation, legal disputes, replacing its independent accounting firm, and letting go of the CEO and president who founded the company.
In late April, after the noise around the company had slightly relaxed, Marvell announced a deal with activist investor Starboard Value, in which the hedge fund that owns 6.7% of the company will add four board members and back the board's decisions for now. At the beginning of May, one of these Starboard-backed directors - Richard Hill - was named the company's chairman and fueled investors' hopes that the company is heading towards a sale.
Last week, the Chinese government-owned investment company Tsinghua Holdings disclosed a stake in Marvell in an FTC filing that affirms a minimum $78.2M investment, which is almost 2% of the company. Assuming the 5% holding is the minimum according to the FTC threshold and no SEC document was filed to disclose a more than 5% holding, investors can assume Tsinghua currently holds between 2% and 5% of Marvell. In case, the Tsinghua share is at the higher end of the range, so the company could demand a seat on the board to receive an active role in shaping the company's future.
Marvell has two very attractive assets that make the company a lucrative acquisition target or potential play for activist investors: it has an excellent semiconductor business with incredible growth potential and a cash pile of $2B. An influential activist investor could distribute the cash and sell the company as a whole or in pieces for an additional $2B or more. Starboard is a great example of an activist investor that could execute such a plan, as happens these days at Yahoo (NASDAQ:YHOO).
Tsinghua's investment in Marvell may suggest that the Chinese investment firm sees the same upside potential in a Marvell deal as Starboard sees but might want to take it in a different direction. As I mentioned above, Tsinghua will probably demand a seat on the board and try to use its extensive network in China to sell Marvell or part of it to one of the rising Chinese chipmakers.
This game plan might be aligned or not aligned with Starboard's vision of Marvell, and in some extreme scenarios, could even trigger a shareholder's fight over one step or another. However, I believe that Starboard could leverage Tsinghua's presence in the selling process and locate potential buyers in China that could maximize both the sale price and shareholders' value. The sale process in China will probably include some part of the company but not the entire chip business as such a deal would not receive the U.S. regulatory approvals.
In an earlier article, I mentioned that Marvell does not have clear and decisive catalysts for price appreciation, and I would prefer to keep it on my watch list. However, after the recent Tsinghua disclosure, I am slightly changing my view. I believe this is a move in the right direction, and the presence of Starboard and Tsinghua and their involvement in the company will accelerate the sale process.
I moved Marvell up on my watchlist and am waiting for a correction in share price to buy and open a long position with a few shares. Later, I will add some more according to the developments, but in the meantime, and until I open my equity position, I sold some MRVL $10 puts to benefit from any upside in the interim period.
Disclosure: I am/we are long MRVL, YHOO.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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