GS: CEO staying a positive, tgt $23
Excerpts by Goldman Sachs, 5/7/07
Internal options investigation completed; CEO staying a positive
What"s changed
Marvell announced completion of an internal review of historical stock option practices, including finding of instances in which grant dates were chosen with the benefit of hindsight as to the stock price and failure of internal controls related to stock option process. The committee recommended Sehat Sutardja remain as CEO and member of the board but step down as chairman. Also, Marvell announced the resignation of CFO George Hervey and a change in responsibilities for Weili Dai to a nonmanagement role
(from COO and director). Marvell will restate financials with preliminary cumulative, pretax, noncash charge estimated at $325-$350 mn; Marvell expects to file delayed
10-Qs/Ks as soon as practicable and is implementing other remedial measures.
Implications
We believe the options review has been an overhang, including uncertainty about the impact to management, in particular related to CEO Sehat Sutardja, who investors view as Marvell's visionary. Hence, we expect completed review and CEO retention will be
viewed as a positive. We believe investors generally expected some management changes and expect Mr. Hervey?s resignation, Ms. Dai?s change in responsibilities, as well as the previous
termination of its general counsel will be viewed as understandable as Marvell works to put the options review behind it. We are updating FY08/FY09 EPS: no change to 1QFY08 (April) but lowering 2QFY08 (July) given continued weakness related to the HDD market.
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Valuation
We maintain our 12-month price target at $23, based on $0.45 normalized EPS and 1.5X target PEG ratio as we expect continued outsized growth.
