Magnachip to be Sold to Beijing PE Firm
While Magnachip (MX) is listed on the NYSE and is technically a Delaware corporation, the company has a business address in Luxembourg and operates primarily in South Korea as a supplier of display drivers particularly for OLED displays, with display products representing ~59% of sales, and the remainder being power semiconductors. Last year Magnachip sold its mixed signal foundry business and fab to a Korean firm for $350m which allowed them to pay off their outstanding $225m senior notes which would have been due this year, deleveraging the company.
It seems that this has made Magnachip more attractive to potential buyers as they have announced a merger agreement with Wise Road Capital (pvt), whose entities will be buying the company for $29 per share, a 75% premium to the company’s 90 day average price, with a total deal price of $1.4b. The buyer is a Beijing-based Private Equity firm that has a number of smaller investments in technology companies mostly in the semiconductor space, including Huaqin Communication (pvt) one of the largest global OEM for a variety of CE devices.
Magnachip is the leader in the OLED driver IC market and was affected by the closing of Samsung’s (005930.KS) Austin plant during a recent winter storm, however Samsung is bringing the fab back up currently and as a customer of Magnachip, will reinstate production relatively quickly to insure that other Samsung affiliates, such as Samsung Display (pvt), will be less ‘silicon constrained’. While the premium Wise Road is paying for the company is high, as the OLED display market continues to expand, they likely see the continued expansion of Magnachip’s OLED DDIC business, its reduced debt burden, and its exit from the analog foundry business as justification. That said, the deal will still have to pass US government scrutiny by the end of this year according to the agreement, which would trigger a $105m termination fee to the company, less certain reductions if not completed. Given the strained relations between the US and China, particularly over semiconductors, getting all the necessary approvals could prove to be a daunting task.
It seems that this has made Magnachip more attractive to potential buyers as they have announced a merger agreement with Wise Road Capital (pvt), whose entities will be buying the company for $29 per share, a 75% premium to the company’s 90 day average price, with a total deal price of $1.4b. The buyer is a Beijing-based Private Equity firm that has a number of smaller investments in technology companies mostly in the semiconductor space, including Huaqin Communication (pvt) one of the largest global OEM for a variety of CE devices.
Magnachip is the leader in the OLED driver IC market and was affected by the closing of Samsung’s (005930.KS) Austin plant during a recent winter storm, however Samsung is bringing the fab back up currently and as a customer of Magnachip, will reinstate production relatively quickly to insure that other Samsung affiliates, such as Samsung Display (pvt), will be less ‘silicon constrained’. While the premium Wise Road is paying for the company is high, as the OLED display market continues to expand, they likely see the continued expansion of Magnachip’s OLED DDIC business, its reduced debt burden, and its exit from the analog foundry business as justification. That said, the deal will still have to pass US government scrutiny by the end of this year according to the agreement, which would trigger a $105m termination fee to the company, less certain reductions if not completed. Given the strained relations between the US and China, particularly over semiconductors, getting all the necessary approvals could prove to be a daunting task.
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