Quick Idea: Magnachip (MX)

Another event-driven idea.

Magnachip is a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, IoT, consumer, industrial and automotive applications.

In March 2021, the company entered into definitive agreement with Wise Road Capital, a Chinese private equity firm, in a take-private transaction valued at $1.4 billion or $29.00 in cash per share. The transaction was terminated in December 2021 as it failed to obtain regulatory approval.

Magnachip has since attracted other buyers (including the receipt of an unsolicited proposal for $35.00 in cash per share after it had already accepted Wise Road’s offer) and two weeks ago, rumors emerged that Korea’s LX Group was seeking to acquire it, with the potential submission of an LOI as early as last week. A couple of days later, LX Group’s Chairman confirmed its interest in Magnachip:

"It is true that the group is under consideration for acquiring Magnachip. In terms of its growth strategy, the group is considering various M&A opportunities and one of them is Magnachip," the official said.

Magnachip was hit yesterday by the market meltdown and closed down almost 9% at $16.02, close to where it traded before LX Group’s rumors emerged. We know the company has already received multiple bids, that it is willing to sell itself, and that LX Group is considering acquiring it.

A new offer may not match Wise Road’s $29 from last year given current market sentiment. But the company has since received a termination fee of $70.2 million. With ~$7/share in net cash, it trades at <7 P/E ex-cash based on consensus 2023 EPS of $1.39/share. Accurately predicting the timing and level of a bid is impossible, but a range of 14x-16x P/E ex-cash would result in a $25-$29 share price or 56% to 81% upside, with downside protected by a rock-solid balance sheet.