Takeover Chatter Around Marvell, SanDisk

Includes: MRVL, WDC
by: Greg Wilder

We have reported takeover rumors on Marvell (NASDAQ:MRVL) since May of 2006, and they picked up again in September and October. Sandisk (SNDK) takeover chatter is more recent, starting in September of 2006. Merger and leveraged buyout rumors have also circulated.

Marvell Technology Group Ltd.

MRVL, which specializes in hard drives, wireless components and cell phone chips, currently has a market cap of just over $11B with cash and securities of almost $1B and a P/E of about 35. Near the beginning of 2006 MRVL had a market cap of around $20B – almost the double of what it is valued at today. This significant drop in the valuation of the company has caused the takeover rumors to circulate.

On November 8, 2006 MRVL closed its $600M purchase of Intel's cell-phone processor line, and because of the difficulty of integration was downgraded by several tier 1 firms. The downgrades have caused a further downside, creating a greater opportunity to purchase MRVL at a lower price.

MRVL appears to want to become a large semiconductor company themselves, and has typically been the acquirer in the past. However, if a significant premium were offered it could be hard for any shareholder to disagree with a buyout.

SanDisk Corporation

SNDK has a market cap of $9.25B and cash/securities of about $2.5B and a P/E of about 26. SNDK's valuation has also been hit significantly this year, dropping about 30%.

SNDK, which specializes in flash memory, this past week finished acquiring Msystems, an Israeli company that develops memory used in mobile phones and other devices.

Previous Semiconductor Buyouts

In the past year or two there have been several takeovers and buyouts of semiconductor companies by private funds. Most recently Freescale Semiconductor (NYSE:FSL) was taken over by several private funds (led by Blackstone Group and including Texas Pacific Group, Carlyle Group and Permira funds) for $17.6B – a premium of more than 35%. At the time these groups made the bid, there was interest from other similar funds, and a bidding war ensued for FSL.

Many analysts have commented that there could be many other semiconductor buyouts in the near future or that the strategies of such funds could be to consolidate several such companies before taking them public again.

Possible Acquirers

LBO (Leveraged Buyout): With only $1B in cash, MRVL could be a tough company to leverage; however, seeing what happened with Freescale Semiconductor and several similar companies (Philips Semiconductor for $9.4B, Agilent Technologies, etc.), a leveraged buyout is certainly plausible.

SNDK, with more than 25% of its market cap in cash and securities, could be a strong LBO candidate.

With private equity firms gaining interest in semiconductor companies, either MRVL or SNDK could be next on their list. It is also possible that the private equity firms that lost the bidding war for FSL would still want to pick up a big semiconductor company. MRVL and SNDK could be perfect candidates.

Texas Instruments Inc. (NYSE:TXN): TXN has also been a rumored acquirer of MRVL. TXN has a market cap of $44.5B with cash and securities of just over $4B.

Many of MRVL's chips do not directly compete with TXN's chips, making them an attractive target for a takeover. By acquiring MRVL, TXN could effectively expand their product line.

There are a host of funds and companies that could be interested in purchasing either SNDK or MRVL. Because of this year's decline in valuation for both companies, they have become very attractive takeover targets.

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