Magnachip Deal Decision Goes to Biden
As we have previously noted, in March Magnachip (MX) entered into an agreement with Wise Road Capital (pvt) under which Wise Road would be purchasing Magnachip for $29/share. While the South Korean Ministry of Trade, Industry, and Energy initially gave tacit approval to the transaction the Korean government expressed the view that Magnachip’s technology was ‘core technology of South Korea’ after a bit of cajoling by the US Treasury Department, citing an investigation by the Committee on Foreign Investment in the US (CFIUS). While Magnachip’s production is in South Korea, it is a Delaware company and therefore under the auspices of CFIUS, and with Wise Road being a Chinese entity, the scrutiny was inevitable..
Complicating things further, Magnachip received another offer, roughly 20% higher than the Wise Capital offer from Cornucopia Partners (pvt), another Chinese & Hong Kong group of investors, despite the cloudy regulatory picture. In mid-June, the company received notice from the US Department of the Treasury essentially creating a standstill action, preventing any further movement toward the completion of either deal, until CFIUS makes a final conclusion. On August 27th the company received another notice from Treasury indicating that CFIUS had identified ‘risks to the national security of the United States as a result of the merger’ and has not identified any mitigation measures that it believes would alleviate those identified risks.
At this point, unless new information is uncovered, CFIUS is expected to refer the issue to the President for a final decision. As always, there is no assurance that either the company or the acquirer would agree to any proposals that would satisfy CFIUS, so until the President makes his ruling, the deal is on hold. As much as we don’t see Magnachip’s driver technology as putting US security at risk, there is enough political and national sentiment against China that we see almost no chance for the Wise Road deal to progress, which opens the door to Cornucopia. That said, the details where capital from side investors is situated in that deal will also be reviewed, which could lead to another CFIUS review.
Complicating things further, Magnachip received another offer, roughly 20% higher than the Wise Capital offer from Cornucopia Partners (pvt), another Chinese & Hong Kong group of investors, despite the cloudy regulatory picture. In mid-June, the company received notice from the US Department of the Treasury essentially creating a standstill action, preventing any further movement toward the completion of either deal, until CFIUS makes a final conclusion. On August 27th the company received another notice from Treasury indicating that CFIUS had identified ‘risks to the national security of the United States as a result of the merger’ and has not identified any mitigation measures that it believes would alleviate those identified risks.
At this point, unless new information is uncovered, CFIUS is expected to refer the issue to the President for a final decision. As always, there is no assurance that either the company or the acquirer would agree to any proposals that would satisfy CFIUS, so until the President makes his ruling, the deal is on hold. As much as we don’t see Magnachip’s driver technology as putting US security at risk, there is enough political and national sentiment against China that we see almost no chance for the Wise Road deal to progress, which opens the door to Cornucopia. That said, the details where capital from side investors is situated in that deal will also be reviewed, which could lead to another CFIUS review.
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