Marvell Technology (MRVL): LBO candidate
A couple of years ago, Marvell (MRVL) were among the high flying stocks with great potential. For those that are not familiar with Marvell, this company produces the micro-chips that go into cell phones, video games and all sorts of gadgets. They are the brain behind a lot of the products we use on a daily basis. Marvell’s main competitors are Texas Instrument (TXN) and Agere Systems (AGR). In the last six months, MRVL has been rumored as a potential Leverage Buyout (LBO) candidate after their stock declined drastically. At one point it was trading at $15 per share.
The root of the decline in of MRVL stock can be trace to the stock options scandal, which caused to the company to delay its regulatory filings. More than likely, MRVL will likely be required to restates it’s earnings to get the SEC off their back. A shuffle in management should also be expected.
Until the options back dating scandal is resolved, MRVL’s stock will not likely go anywhere on its own. There was a time when it was trading at $15, where we encourage our readers to buy. However, this stock now appears to have hit a ceiling at $20 per share. In our view, the only reason MRVL is still trading this high is the continued speculation that the company will eventually be acquired.
In 2006 we saw many private equity firms buying up companies that were in trouble at great discount. Freescale Semiconductor (FSL) comes to mind from the semiconductor industry. Many analysts believe 2007 could be another banner year for LBO. Our prediction is MRVL is in great trouble, acquisition is still highly possible. We have seen this played out many times before. A company screws up and their valuation tumbles. Once it gets cheap enough, they become a target for takeover. Take the example of Mercury Interactive, which was also in hot water with the SEC for their options backdating practices. Mercury Interactive eventually was acquired by Hewlett Packard (HPQ).
If you’re patient, holding on to your MRVL shares will likely result in a handsome return one day. Obviously this is all speculation, but we still believed the chances of MRVL being acquired remains high. However, if you impatient and hates speculative play, chances are you will do better by investing your money elsewhere. To reduce our risk, we have cut our positions in MRVL by half. We figured a 33% return in 4 month is not a bad deal.
Comments
Hopefully something will light a fire under MRVL and get that stock back up where it belongs. I am holding a position and am losing money, hope there is good news on earnings/conference call day - even if that happens I will most likely only break even. I trust Cramer's thoughts on MRVL (I know, he's only human) so not letting it go just yet.
Posted by: Shelley | February 1, 2007 11:12 AM
Shelly, don't trust Cramer too much. His picks haven't exactly been that great. Cramer tends to get caught up in the moment at times and simply shoot out illogical recommendations. I think he's knowledgeable, but we wouldn't take him too seriously.
Posted by: John | February 1, 2007 05:09 PM
Yeah, I hear ya. I don't take what anyone recommends hook, line and sinker. I thought Cramer had sound reasoning when he recommended MRVL. Which makes me smirk to myself because taking market psychology into consideration, what is reasonable this week may not be next week. Thanks for the good advice.
Posted by: Shelley | February 5, 2007 05:49 PM