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

The sale of South Korean semiconductor manufacturer MagnaChip ushered in a new situation. It was originally planned to hold an extraordinary general meeting of shareholders on the 15th to review the proposal to sell shares to Chinese private equity firm Zhilu Capital. Because the British private equity fund Cornucopia suddenly joined and the price was higher than 260 million US dollars, the shareholders meeting was postponed to June 17th. . This Chinese-funded acquisition case was opposed by Korean public petitions earlier, and the U.S. Committee on Foreign Investment requested a review. This time, it encountered drastic changes, which may lead to a final miscarriage.

Sudden hostile takeover by UK private equity, US$260 million higher than Chinese capital

On June 11, South Korean display and power solution provider MagnaChip Semiconductor Corporation received the British private equity fund Cornucopia Investment Partners for the acquisition of all outstanding shares of Hostile Bid (a hostile acquisition) for $35 per share in cash, the total transaction price It is 1.66 billion U.S. dollars.

The investors represented by Cornucopia include financial sponsors led by Mr. Tim Crown, Yangon Financial Holdings, Zhongyan Investment Management Co., Ltd., and Lombarda China Fund.

In March of this year, MagnaChip Semiconductor Corporation reached an agreement with Wise Road Capital, a Chinese private equity firm. According to the terms, MagnaChip shareholders will receive 29 US dollars in cash per share of common stock currently held, and the total transaction amount is approximately 1.4 billion US dollars.

On June 14, MagnaChip decided to postpone the special shareholder meeting scheduled to be held at 8 pm from the 15th to June 17, 2021.

Although Cornucopia's bid is higher than the previous Chinese-funded intention, MagnaChip's board of directors has not yet determined whether the new bid has priority and temporarily reserves the right to the merger agreement with China Zhilu Capital.

MagnaChip occupies 30% of the global OLED DDIC share

Magnacchip is a company established by Hynix Semiconductor (now SK Hynix) in the separation system division in October 2004. 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, the two 8-inch wafer fabs (FAB4 and FAB5) located in Cheongju were merged, collectively referred to as FAB4, which specializes 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. At present, the company designs and produces products including display driver chips (DDIC), communications, Internet of Things (IoT), and automotive semiconductors. Its largest shareholder is Oaktree Capital of the United States, which owns 9% of its shares.

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

2020 OLED DDIC supplier market share structure

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

Chinese acquisitions, South Korea worried about technology leaks, U.S. requests CFIUS review

On March 25, MagnaChip reached a merger agreement with Wise Road, a Chinese private equity investment company. The total cash value of the transaction is US$1.4 billion, or approximately RMB 9 billion.

Both parties confirmed that Magnachip's management team and employees will continue to stay in Cheongju City and Gumi City, Seoul, and hold positions. It will be a seamless connection for customers and employees in Magnachip's business. It is expected that the transaction will be completed in the second half of 2021, provided that the approval of the shareholders and the Ministry of Trade, Industry, and Energy (MOTIE) is received.

Now, according to the current development, if the British private equity Cornucopia successfully acquires Magnachip, then the technology leakage dispute and the US government review that have been continuously raised will be resolved.

Since March of this year, after the announcement of the intentions of MagnaChip and Zhilu Capital, there are widespread concerns in South Korea that if Magnachip is acquired by Chinese investors, DDIC, and other major product design essentials will be transferred to Chinese companies and help China's display panels. Companies are winning in the next-generation OLED market competition. Therefore, the acquisition was opposed by nearly 30,000 South 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 technology owned 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 US Treasury Department requested Magnachip to submit a review to the Committee on Foreign Investment in the United States (CFIUS). At that time, Magnachip believed that the acquisition did not require any regulatory approval in the United States, but still plans to cooperate with CFIUS's requirements.

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

On June 11, Cornucopia, a British private equity firm, put forward a higher-priced takeover offer.

At this point, the transaction target of this acquisition may change under the influence of negative public opinion, government positions, and hostile acquisitions by British private equity.

About Zhilu Capital

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

In 2017, Zhilu Capital and Beijing Jianguang Capital, another institution in the industry alliance, jointly acquired NXP's NXP Semiconductors for US$2.76 billion. It is China's largest overseas semiconductor M&A case so far. After the transaction is completed, NXP's Standard Products division is renamed Nexperia, and its headquarters are also located in Nijmegen, the Netherlands. At that time, Anshi Semiconductor's revenue was only 1.1 billion U.S. dollars. Two years later, its revenue in 2019 reached 1.6 billion U.S. dollars. Anshi Semiconductor subsequently successfully merged into the listed company Wingtech Technology.

In 2019, Zhilu Capital acquired Singapore United Technologies (UTAC), and within two years, it successfully turned the world's third-largest automotive electronics semiconductor packaging and testing company's business into profit.