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Magnachip: Market Considers This Deal Dead


  • The market seems to consider the deal by Wise Road Capital for Magnachip to be dead in the water.
  • I wouldn't take the under on that bet on a 50/50 proposition.
  • But the payout in case of a completed deal seems very large compared to the longer term losses in case of a deal break.
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Modern Electronics Factory: Female Supervisor Talks to a Male Electrical Engineer who Works on Computer with CAD Software. Ontwerpen van PCB, Microchips, Halfgeleiders en Telecommunicatie-apparatuur

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Magnachip Semiconductor (NYSE:MX) makes OLED display drivers. These are used in the automotive industry, TVs, and smartphones. The company has a market cap of $826 million and is based in South Korea. A Chinese private equity firm called Wise Road Capital

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This article was written by

Bram de Haas profile picture

Bram de Haas brings 15 years of investing experience to the table and has over 5 years of experience managing a Euro hedge fund. He is also a former professional poker player and utilizes his bundle of risk management skills to uncover lucrative investments based on special situations.

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Analyst’s Disclosure: I/we have a beneficial long position in the shares of MX either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (12)

Jion profile picture
We have to give credit to the author, he was right about this deal. The arbitrage hunters should check JOBS. I think there the risk is much lower.
Albert Lin, CFA profile picture
Thanks for the article. MX and Wise Road actually extended the merger date to December 2021, not 2022. This is directly from MX 8K.

"In accordance with Section 7.2(a)(ii) of the Merger Agreement and pursuant to a written notice delivered by Parent to the Company, the Termination Date under the Merger Agreement has been extended from 11:59 p.m. (New York time) on September 25, 2021 to 11:59 p.m. (New York time) on December 25, 2021."
Value Digger profile picture
Based on the worst case scenario, MX will receive from $70 million to $105 million in breakup fees, which translates into about $2 per share in cash, if the deal does not go through.

Meanwhile, the unaffected closing price on March 2, 2021 was $18.83 per share, as shown below:


Therefore, MX is cheap at today's price of $18 per share, based also on its key ratios (i.e. EV-to-Revenue, EV-to-adj. EBITDA) and the fact that MX will keep growing its business in the next quarters.
Jion profile picture
A Korean analyst agrees with the author, the deal looks to the most as dead. But he thinks that Cornucopia will come back if this happens and the negotiations with Magnachip will continue:
16 Nov. 2021
@Jion latest summit between Biden and Xi , may open up new opportunity for such deal to flow again. Looking forward to further developments in Q1 ,2022
Spare me the platitudes. profile picture
Why does CFIUS have so much influence in this deal? MX is largely Korea based. Is deal price a reflection of CFIUS’s influence on the ROK regulator?
@Spare me the platitudes. because wise road is a PE firm based in china
Bram de Haas profile picture
@Spare me the platitudes. you're not wrong to wonder: Magnachip has little real presence in the United States. Indeed, according to its May 2021 8-K: (i) all of Magnachip’s manufacturing and research and development activities take place in South Korea; (ii) the company’s sales activities occur primarily in South Korea, with the remainder of sales operations in China, Hong Kong, Taiwan, Japan, and Germany; (iii) the company does not have any employees, tangible assets, or IT systems in the United States; and (iv) all of Magnachip’s intellectual property is owned by its operating company or other non-U.S. subsidiaries.[4] With that in mind, to assert jurisdiction over the proposed transaction, CFIUS presumably (we say presumably because there is no publicly available explanation from CFIUS regarding its jurisdiction in this case) relied on the fact that Magnachip was a U.S.-listed company incorporated in Delaware with a Delaware subsidiary. www.clearytradewatch.com/...
Rgarga profile picture
@Bram de Haas what do you think of the update? Looks like they are aligning with a Chinese customer ??
Jion profile picture
Great analysis. If this deal fails, then the next suitor has to offer $29 plus $2 to make the company accept his offer.
It is the Samsung concentration that is the key risk. Of course, Samsung can't risk its supply chain but Samsung and Korea are likely to be key players in this game. I think CFIUS will not block it if Korea gives the go ahead. Just like Syngenta was allowed to go ahead as the Swiss government did not request CFIUS to stop it.
Vikdan profile picture
I took a small position a few weeks ago. The spread seems too good and, as you wrote, someone else will buy the company if the deal blows. Hopefully we will know this year, but seems unlikely. Thanks for writing
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