What happened

Shares of semiconductor company Cavium Inc. (NASDAQ:CAVM) jumped on Monday following reports that Marvell Technology (NASDAQ:MRVL) was considering an acquisition. According to Reuters, the two companies are in advanced talks, and a deal could be announced in the next few weeks. At 11 a.m. EST, Cavium stock was up 9.5%, while Marvell's was up 10%.

So what

Cavium's market capitalization now sits at about $5.2 billion, while Marvell is valued at just over $10 billion. A combination of the two companies would create a semiconductor company with around $3 billion of annual revenue.

A notepad page titled M&A with a drawing of large fish eating small fish.

Image source: Getty Images.

About half of Marvell's revenue during the second quarter came from its storage products, which go into hard disk drives, solid-state drives, and enterprise storage solutions. About one-quarter of revenue came from networking products, and 16% of revenue came from connectivity products. The acquisition of Cavium, which focuses on networking and data center products, would reduce Marvell's dependence on the storage market.

Now what

Neither company has confirmed that acquisitions talks are taking place, and there's no guarantee that these talks will result in a deal. The only detail reported beyond the fact that talks are taking place is that Cavium shareholders would receive a modest premium in the event of a deal. Exactly what that means is up in the air.

As always, buying stocks based on acquisition hopes alone is generally not a great idea. If a deal doesn't materialize in the next few weeks, Monday's surge in Cavium's stock price could disappear.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.