Magnachip Reaches Buyout Agreement with Chinese Private Equity Fund for $1.4B

Magnachip Semiconductor, a South Korean manufacturer of power chips and LED drivers, recently announced it reached a buyout agreement with Wise Road Capital, a Chinese private equity fund. Valued at $1.4 billion, the all-cash deal would take the company private at $29 per share. 

Pending regulatory and shareholder approval, the deal would add Magnachip to Wise Road’s portfolio of power electronics companies, which includes Netherlands-based semiconductor manufacturer Nexperia. Wise Road and a consortium of Chinese investors bought the firm from NXP Semiconductors in 2016 for $2.75 billion. China-based smartphone manufacturer Wingtech Technology later acquired Nexperia for around $3.6 billion in 2018 and upped its investment in 2019, buying a controlling stake in the company.

Other ventures in Wise Road’s portfolio include sensor manufacturers Huba Control (acquired from Siemens) and ScioSense, mobile communications firm JLQ, smart device developer HUAQIN and assembly and test service provider UTAC.

Magnachip has built up a portfolio of 1,200 granted and pending patents, according to its website. Its end-markets span communications, Internet of Things, consumer and automotive. In 2020, the company generated around $507 million in revenue, with $299 million sourced from its display solutions business, $166.4 million from power solutions and $41.5 million from transitional fab foundry services. The figure represents a 2.6% year-over-year drop due to its exit from the non-automotive LCD business.

Per the buyout agreement with Wise Road, Magnachip’s leadership team and employees will continue their roles in Cheongju and Gumi, South Korea. Wise Road will work with Magnachip’s executives to scale the firm as a global leader in the display and power markets, executing its “MX 3.0” growth strategy. 

In a recent earnings press release, Magnachip CEO YJ Kim referred to MX 3.0 as an “exciting new chapter of growth, with a sharpened focus as a pure-play standard products company, renewed energy, and a clear mission of empowering our customers.”

This transformation involves divesting the company’s non-core Foundry Services Group business and repositioning the company for continued growth in the OLED smartphone, TV and automotive markets, while also pursuing high-growth power segments such as computing, automotive and industrial. 

Shares in Magnachip (NYSE: MX) soared by about 30% after the company announced the merger on March 26—starting from $20.39 at market close on March 25 to $26.55 in pre-market trading on March 26, then closing out the day at around $26.

 

Magnachip (MX) stock chart from March 23 to March 31 shows a substantial increase after the company announced a take-private, all-cash deal with Wise Road Capital on March 26. (Chart via TradingView)

 

Reports of a Magnachip buyout had been circulating for weeks prior to the merger announcement on March 26. Soon after, the South Korean Ministry of Trade, Industry and Energy requested documents to confirm whether the transaction would contain national core technologies in the semiconductor field. 

In any case, with closing conditions met, the transaction is expected to close in the second half of this year, pending approval from regulators and shareholders.