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British private equity hostile acquisition of MagnaChip, Chinese acquisition or abortion

Posted by: Yoyokuo 2022-11-11 Comments Off on British private equity hostile acquisition of MagnaChip, Chinese acquisition or abortion

On June 14, the sale of South Korean semiconductor manufacturer MagnaChip ushered in a new situation. Originally planned to hold an extraordinary general meeting of shareholders on the 15th to consider the proposal to sell shares to Chinese private equity firm Zhilu Capital, because the British private equity fund Cornucopia suddenly joined, and the offer was higher than 260 million US dollars, the general meeting of shareholders was postponed to June 17. . This Chinese-funded acquisition case was opposed by a petition from the Korean people earlier, and the Committee on Foreign Investment in the United States requested a review.

British private equity suddenly hostile takeover, $260 million higher than Chinese capital

On June 11, MagnaChip Semiconductor, a South Korean Display and power solutions provider, received the British private equity fund Cornucopia Investment Partners to acquire Hostile Bid (hostile takeover) of all its outstanding shares in cash at $35 per share. The total transaction price $1.66 billion.

Investors represented by Cornucopia include Financial Sponsors led by Mr. Tim Crown, Yangon Financial Holding Company, Zhongyan Investment Management Co., Ltd. and Lombarda China Fund.

In March, MagnaChip Semiconductor reached an agreement with Chinese private equity firm Wise Road Capital. Under the terms, MagnaChip shareholders will receive $29 in cash for each share of common stock currently held by MagnaChip, for a total transaction value of approximately $1.4 billion.

On June 14, MagnaChip decided to postpone the special meeting of shareholders scheduled for 8 p.m. on the 15th to June 17, 2021.

Although the bid submitted by Cornucopia is higher than the previous Chinese investment intention, MagnaChip’s board of directors has not yet determined whether the new bid is preferred and reserves the right to the merger agreement with China Zhilu Capital for the time being.

MagnaChip occupies 30% of global OLED DDIC share

Magnacchip is a company established by Hynix Semiconductor (now SK Hynix) in October 2004 by the separation system division. It is divided into Foundry Service and Standard Products, with a total of 5 wafer factories. The 5-inch factory was closed in 2007, and the 6-inch factory was closed in 2015. In 2016, two 8-inch fabs (FAB4 and FAB5) located in Cheongju were merged, collectively known as FAB4, specializing in the foundry business.

In 2011, it was listed on the New York Stock Exchange (NYSE) (code: MX). In 2020, it sold the FAB4 foundry business and began to focus on the display and power semiconductor business. Currently, the company designs and manufactures products including display driver chips (DDICs) for communications, Internet of Things (IoT), and automotive semiconductors. Its largest shareholder is the United States’ Oaktree Capital (Oaktree Capital), which owns 9% of its shares.

In terms of OLED DDIC, MagnaChip is a supplier to Samsung and LG Display. According to RUNTO data, in 2020, Samsung Electronics accounted for more than 50% of the market share, and MagnaChip ranked second with a market share of nearly 30%.

OLED DDIC Supplier Market Share Structure in 2020

British private equity hostile acquisition of MagnaChip, Chinese acquisition or abortion

Data source: RUNTO, unit: %

RUNTO analysis believes that MagnaChip will benefit from the increased penetration of OLEDs brought about by 5G and foldable mobile phones, as well as increased demand for high-end power products, especially in the fast-growing electric vehicle market.

Chinese acquisitions, South Korea worry about technology leaks, the United States asks CFIUS to review

On March 25, MagnaChip reached an M&A agreement with Chinese private equity investment firm Wise Road. The all-cash value of the transaction is US$1.4 billion, or about 9 billion yuan.

Both parties confirmed that Magnachip’s management team and employees will continue to hold positions in Cheongju and Gumi, Seoul, Korea. It will be seamless for customers and employees in Magnachip’s business. The deal is expected to close in the second half of 2021, subject to approvals from shareholders and Korea’s Ministry of Trade, Industry and Energy (MOTIE).

Today, according to the status quo, if the British private equity Cornucopia successfully acquires Magnachip, the technology leak controversy and the US government scrutiny that have been raised will be resolved.

Since March of this year, after the announcement of MagnaChip and Zhilu Capital’s intentions, there has been widespread concern among the Korean people that if Magnachip is acquired by Chinese capital, the design of major products such as DDIC will be transferred to Chinese companies, which will help China’s display panels. Companies are winning in the next-generation OLED market competition. Therefore, the acquisition was opposed by nearly 30,000 Koreans on the Blue House petition website.

In fact, DDIC was not originally a technology protected by the Korean government, and Magnachip did not have an absolute advantage over the most advanced processes possessed by Samsung Electronics and TSMC. Therefore, the industry generally believes that the acquisition has a high probability of being successfully passed by the government.

On May 26, the U.S. Treasury Department asked Magnachip to submit a review to the Committee on Foreign Investment in the United States (CFIUS). Magnachip believed at the time that the acquisition would not require any regulatory approval in the United States, but would still plan to comply with CFIUS requirements.

On June 9, the Ministry of Industry, Trade and Energy of Korea newly designated the DDIC technology owned by Magnachipc as a national core technology.

On June 11, the British private equity Cornucopia made a higher-priced takeover offer.

So far, the transaction object of this acquisition may change under the influence of negative public opinion, government position, hostile takeover by British private equity and so on.

About Zhilu Capital

Wise Road Capital is a global private equity fund management company under the China Zhongguancun Rongxin Industry Alliance. Over the past few years, it has been promoting the development of China’s semiconductor industry through mergers and acquisitions and investment.

In 2017, Zhilu Capital and another institution in the industry alliance, Beijing Jianguang Capital, jointly acquired NXP’s Nexperia for US$2.76 billion. It is China’s largest overseas semiconductor M&A so far. Following the completion of the transaction, NXP’s Standard Products division was renamed Nexperia and is headquartered in Nijmegen, the Netherlands. At that time, Nexperia’s revenue was only $1.1 billion, and two years later, its revenue in 2019 had reached $1.6 billion. Nexperia subsequently successfully merged into the listed company Wingtech Technology.

In 2019, Zhilu Capital acquired Singapore United Technologies (UTAC), and in less than two years, it successfully turned the business of the world’s third largest automotive Electronic semiconductor packaging and testing manufacturer into profit.

Part of the content of this article was compiled from Korean media

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