The deal announced Monday could create a rival to Intel (INTC) and other major computer chip producers.
Cavium shareholders will receive $40 per share and 2.1757 Marvell common shares for each Cavium share they own.
Cavium stockholders are expected to own about 25 percent of the combined company.
Marvell CEO Matt Murphy will lead the combined company, with Cavium co-founder and CEO Syed Ali serving as a strategic adviser and board member.
Shares of Cavium, based in San Jose, California, surged more than 6 percent in premarket trading, to around $80.50. Shares of Marvell Technology, which has its US headquarters in Santa Clara, California, were up around 3 percent, to $20.92.
The deal is the latest to hit the semiconductor industry and follows Broadcom's (BRCM) Nov. 6 offer to buy Qualcomm (QCOM) in a $105 billion transaction. A week later, Qualcomm rejected that bid, which would have been the largest tech merger ever, saying it undervalued the company.