Shares of Magnachip Semiconductor Corporation jumped 27.4% on March 26 after the South Korean chip maker inked a deal with private equity fund Wise Road Capital, to be acquired in a cash-deal worth $1.4 billion.
The take-private transaction was entered into with South Dearborn Limited and Michigan Merger Sub, which are investment vehicles formed by Wise Road Capital.
Magnachip (MX) CEO YJ Kim said, “This transaction is in the best interests of all of our stakeholders, including shareholders, customers and employees. It will provide an excellent opportunity to accelerate our MX 3.0 growth strategy.”
“Given their deep industry expertise, Wise Road Capital is an ideal partner for Magnachip, and we look forward to working with them as we chart the next phase for our company,” he added.
Per the terms of the agreement, Wise Road Capital will pay $29 in cash for each share of Magnachip. The price tag represents a 54% premium to Magnachip’s closing price on March 2, the last trading day after which media reports came out of third-party interest in acquiring the company. (See Magnachip stock analysis on TipRanks)
The transaction, which awaits certain regulatory and shareholder approvals, is expected to close in the latter half of this year. After closure, the management team of Magnachip and employees are likely to continue their roles, with the company to remain based in Cheongju, Seoul, and Gumi, South Korea.
Working together with Magnachip’s management team, Wise Road through its additional investment and global network, will help Magnachip’s growth globally, the company said.
Following the deal, Oppenheimer analyst Martin Yang maintained a Buy rating and a target price of $25 (3.9% downside potential).
Yang believes that “given MX’s minimum exposure to the US market, CFIUS will not pose threats to the deal’s closing.”
The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating based on 3 Buys versus 2 Holds. The average analyst price target of $26.25 implies that shares are almost fully valued at current levels.
Magnachip scores a “Perfect 10” from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.