Marvell to purchase Lumentum for $115 billion in record-breaking tech deal

What happened: Marvell Technology ( MRVL ) shares fell more than 4% on Monday after the chip designer announced it will acquire optical component maker Lumentum ( LITE ) in a deal valued at $115 billion. The transaction would be the largest merger between two publicly traded companies on record. Lumentum shares also fell 10% following the announcement.

What's behind the move: The record breaking agreement is expected to expand the combined company's total addressable market to $550 billion, according to the announcment.

"AI infrastructure is undergoing a fundamental architectural shift toward optical connectivity, creating an opportunity that comes along once in a generation," Matt Murphy, chairman and CEO of Marvell, said on Monday.

Lumentum shares fell as investors weighed the implications of the all-stock acquisition, under which shareholders will receive Marvell shares rather than cash.

Lumentum shareholders will get 4.5 shares of Marvell stock for every Lumentum share they own. The agreement mplies an enterprise value of approximately $115 billion, or $1,132 per share, representing a 23.9% premium over Lumentum's Oct. 28 closing share price.

What else you need to know: The acquisition gives Marvell greater access to optical technologies and manufacturing capacity, which have become critical bottlenecks of the AI infrastructure build-out.

Lumentum makes lasers and other optical components as increasingly powerful AI systems require faster connections. Marvell, which competes with Broadcom ( AVGO ), designs high-speed infrastructure and custom chips that enable AI computers to communicate with one another.

Earlier this year, Marvell stock rallied sharply after AI chip heavyweight Nvidia ( NVDA ) CEO Jensen Huang described the chip designer as "the next trillion-dollar company."

The company joined the S&P 500 ( ^GSPC ) index in June. Marvell shares are up more than 120% year to date. Lumentum shares have rallied more than 100%.