Silicon Motion jumps on report MaxLinear in talks to purchase (update)

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Update 6:56am: Adds trading halts for SIMO and MXL.

Silicon Motion (NASDAQ:SIMO) soared 13% in after hours trading on report that MaxLinear Inc. (NASDAQ:MXL) is in talks to purchase the chipmaker. Trading in SIMO and MXL was halted for news pending on Thursday morning.

A deal may be announced in the coming days if negotiations are successful, according to a Bloomberg report. Taiwan-based MediaTek (OTCPK:MDTKF) is also said to be interested in making an offer for SIMO.

The news comes after Bloomberg report last month that Silicon Motion was exploring a sale following interest following after a similar report from Betaville that there was speculation that a mystery buyer was circling the semiconductor company.

Silicon Motion has a market cap of $2.6 billion. An acquisition would be the largest ever for MaxLinear (MXL), according to Bloomberg.

Silicon Motion (SIMO) could be an "easy tuck-in" candidate for most fabless design houses Wedbush analyst Matt Bryson wrote in a note last week.

Microchip Technology (MCHP), Marvell (MRVL) and Broadcom (AVGO) may be potential buyers of SIMO given their exposure to SSD controllers would likely yield cost/design synergies, Bryson wrote. The company could also see possible interest from Qualcomm (QCOM) and Mediatek (OTCPK:MDTKF).

Silicon Motion was scheduled to report Q1 results after the close on Wednesday. Silicon Motion in past quarters has released its results at 6pm. A conference call on 1Q earnings is scheduled for Thursday morning.

Comments

[mailforrpg]

I very much doubt this deal will go through. It undervalues SIMO, especially considering the .388 MXL shares which may not be worth more than 6-8$ by the time this closes. SIMO has much stronger financials by itself and more than likely someone else with a bigger balance sheet will step in with a higher offer. I will vote against this deal if it moves forward.

[Tambo210]

@mailforrpg Might not be your decision which counts. If institutions hold the lion share and they bought <60, then this is a good (quick) deal.

[Mandingo]

@mailforrpg agree 100% with everything you said. The really sweet combination would be SIMO + Mediatek (the other rumored buyer).

[Value Digger]

Another takeover target in the semiconductor industry is debt-free NVE Corp (NVEC).

Undiscovered NVEC with the 8% dividend announced great results yesterday with top line YoY growth, bottom line YoY growth and bright outlook, according to the latest conference call.

[Jabler79]

How would such a deal work practically? Would it require majority shareholder approval (50%+1)?

[Orangejulius]

@Jabler79 Basically, yes. I'm not sure about the voting situation, if there are any insiders who have super voting rights or a very large number of voting shares. I suspect this one is approved as the price is fair.

[Mandingo]

Jesus finding great companies to invest in a reasonable valuations in this market has been difficult and painful. And now my best picks are getting taken away from me.

[Philip Marlowe]

I dont see how mxl can swallow simo. Mxl is only 3.6 billion market cap.

[Orangejulius]

@Philip Marlowe It just takes debt and share issuance.

Edit: MXL has really impressive growth expectations moving forward. If they do a dual stock / cash offer, it would be tempting to simply keep the shares.

Edit: Exactly what I said earlier appears to be happening. Share issuance and debt to fund this. Both companies are trading in similar valuations, so it's possible this will be accretive to MXL. Someone more talented than I can hopefully run the numbers.

[Philip Marlowe]

@Orangejulius I am holding both MXL and SIMO so I am a little conflicted. I am glad SIMO is getting some recognition but I do not want MXL to get diluted.

I still think that the real bidder is Mediatek though. Mediatek is a 42 billion company, they can swallow SIMO without a hiccup. They are also a fellow Taiwanese co, so that the combination will be easier both from regulatory and cultural point of view. I think MXL is there just to get their name in the papers as a big boy deal maker and in return to ensure Mediatek pay a higher price.

[Orangejulius]

@Philip Marlowe you may indeed be correct. SIMO would fit into their SOC offerings and allow them to package more of their own products together.

Mediatek has a reputation as one of the "budget device" kings, and SIMO would provide another piece to expand their margins.

[Orangejulius]

People selling in that big fall the other day must be regretting this one. I suspect we will see $100-$120 offered. $90 is too low given expected $7.80 EPS next year. 13-15x is very fair when the stock typically trades at 15x earnings.

With both MediaTek and MXL possibly bidding, I think there is a very good chance it goes through.

[Ardennes]

@Orangejulius Mean PE over last 5 years almost 20. Over last 10 years, around 18.3. You usually expect an acquirer to pay a control premium. If you back out cash and apply an 18x multiple (no control premium over 10 year median) to 8.00 eps, you get over $150/sh.

[Orangejulius]

@Ardennes FastGraphs shows mean adjusted operating earnings as 14.2x over the past 10 years, and 15.1x over the past 5.

You must be talking about GAAP or basic earnings, which I don't prefer, but use in specific situations. Foreign companies like SIMO can be a good candidate.

There is however strong correlation to all three metrics with their charts. In either case, that same mean reversion would be between $100-$125.

I don't think we're going to see $150 in this environment, but it depends on how badly someone wants them. I'm happy either way, as even if bidders walk away, there is now renewed interest in SIMO.

[Orangejulius]

@Ardennes It looks like my $100-$120 prediction was on target. 15x adjusted operating earnings is a fair offer given the current climate of worry.

[FirstFIREWealth]

I'm gonna be one rich fella! 🚀🚀