Magnachip Merger Paused as Rival Enters with Competing Buyout Offer

June 17, 2021 by Shannon Cuthrell

Pending its merger with a Chinese private equity firm, Magnachip has now received a higher buyout proposal from a rival entity.

South Korean power electronics manufacturer Magnachip Semiconductor Corporation disclosed on Friday it received a buyout proposal that exceeds the value of its pending merger with China-based private equity group Wise Road Capital. Earlier this week, the company also announced that the Committee on Foreign Investment in the United States (or CFIUS) ordered a pause on the merger while the regulatory agency formally reviews the deal.

In a filing with the U.S. Securities and Exchange Commission on Wednesday, the company said it’s assessing the impact of the interim order, and its stakeholder meeting scheduled for Thursday is expected to be postponed. 

As EE Power reported earlier this year, Wise Road Capital offered a $1.4 billion all-cash deal in March to take the company private at $29 per share. Under the agreement, Magnachip’s leadership team and employees would continue their roles in Cheongju and Gumi, South Korea, and Wise Road would work with executives to scale the firm as a global leader in the display and power markets.

The new unsolicited proposal from London-based private investment firm Cornucopia Investment Partners ups the ante to $35 per share, representing a value of about $1.66 billion. The notice from Magnachip said the proposal includes financial sponsors led by Tim Crown, co-founder and chairman of Arizona-based IT technology provider Insight Enterprises, Chinese investment firms Yango Financial Holdings and Lombarda China Fund, and Hong Kong-based Sino-Rock Investment Management Company Limited. Cornucopia Investment Partners says on its website that it has assisted with raising over $2 billion in financing for mergers and acquisitions and private equity transactions since its founding in 1999.

Shares in Magnachip soared by about 30% after the company announced the merger with Wise Road Capital on March 26, rising from just over $20 to about $26 over the course of the day. 

When the rival bid announcement was made last Friday, shares jumped about 11% to close at $25.89. However, shares dropped over 6% on Wednesday on the news of CFIUS’s interim order, closing at $24.07.

Magnachip’s stock chart from June 10 to June 15 shows price fluctuations after the company announced it received an unsolicited buyout proposal. (Chart via TradingView)

The future of the company’s ownership remains unknown as it fields competing buyout offers and undergoes a review by U.S. regulators. It’s also unclear whether the South Korean Ministry of Trade, Industry and Energy will approve the deal on national security grounds. 

In May, Magnachip released its first-quarter 2021 earnings report, recording $123 million in revenue—down 13.9% from last quarter but up 2.1% year-over-year. In the announcement, Magnachip CEO YJ Kim said the company delivered solid quarterly results “despite the industry-wide supply constraints.” Kim also cited growth in the power solutions business segment. 

Magnachip’s gross profit margin of 27.9% also exceeded expectations “due to the improved product mix and higher utilization,” Kim added.