A Korean finance website published an article claiming a company called LX Semicon is submitting a letter of intent to acquire Magnachip Semiconductor Corporation (NYSE:MX) for 1.5 trillion KRW. This translates into $1.18 billion. The firm teamed up with U.S. private equity firm Carlyle Group (CG) to make it happen. South Korean PE fund Hahn & Co. and sensors manufacturer Littelfuse submitted letters of intent last month, according to a Maeil Business Newspaper. NVC Partners is said to also be interested in acquiring MX.
Last year, a deal with Chinese PE firm Wise Road Capital ultimately ended up being blocked by the U.S. It is not entirely surprising there seem to be multiple bidders. The previous bid came together after multiple rounds of bidding by as many as nine different parties. Three parties came within a dollar of the ultimate deal price of $29 per share. However, Wise Road clinched the deal by offering a huge deal-break fee.
$1.5 trillion KRW implies ~$25 per share and possibly a bit more if less than 47.5 million shares are outstanding. End of April a price of around $16.63 per share was rumored, and I commented how it seemed somewhat low:
The 1 trillion Korean won number suggests a price of $16.63 per share. I think that's quite a bit too low. I wouldn't be too thrilled if the board sold it there. I can't imagine Oaktree (of Howard Marks fame and holding a 5% stake) would be happy with this step-down.
Imagine how the board looks if it takes a bid by a Chinese firm (which is something of a risk factor, although I'm still surprised it materialized) and has that bid fail on National Security concerns. Meanwhile, there were scores of other bidders, and some bid $28 or $29 as well. It's known that two of the bids were by U.S.-based firms. How does it look if you fail to take a bid that's a buck lower (to be fair, I can't be sure these were bidders with risk associated as well) then have the deal get shut down... To then move on and sell it $13 dollars lower!
It won't look smart, and I can't imagine them taking something like that.
Magnachip holds around $5.90 per share in cash. It has no debt and EPS of $0.87. Analysts are projecting EPS and revenue will grow strongly. Strategics may have a very good sense of how much Magnachip could accelerate its growth. Private equity firms are likely salivating at the prospect of improving the capital structure here.
A bid around $25 makes total sense to me. Because there is another firm rumored to have put in a bid, LX appears to be strategically as well as emotionally motivated (there is a history between the companies). There is a third party circling, so I'm not ruling out the possibility of the bidding war continuing. Last time, Magnachip still had three bidders at $28; since that time, it has improved earnings, invested in R&D, received a substantial break fee, and bought back shares. At the same time, semis and technology, in general, have recently been very weak.
At the end of the day, I think Magnachip is trading cheap at $19.46 pre-market. I've added a few shares.
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