Magnachip Told by CFIUS to Pause Merger with Wise Road Capital; Shares Sink 6.2%


Shares of Magnachip Semiconductor Corp. (MX) dropped 6.2% yesterday after the company received an order from the U.S. Department of Treasury on behalf of the Committee on Foreign Investment in the United States (CFIUS) to pause the ongoing merger deal with Wise Road Capital until the completion of a government review.

MX is a designer and manufacturer of analog and mixed-signal semiconductor products. (See MX stock chart on TipRanks)

As a result of the order, Magnachip postponed its special meeting of shareholders scheduled to be held on June 17, 2021, as the company assesses further developments concerning the interim order.

In March, MX inked a deal to merge with South Dearborn Limited, an investment vehicle established by Wise Road Capital LTD (Wise Road). The company was entitled to receive $29 per share in an all-cash deal valued at $1.4 billion. The offer price signified a premium of 54% to the closing price on March 2.

However, on June 11, Magnachip received a superior hostile bid from Cornucopia Investment Partners, a private investment firm, to buy all the outstanding shares of MX for $35 per share.

In addition to the pause order, Levi & Korsinsky, LLP, a leading securities litigation firm, has begun an investigation regarding the fairness of the sale of Magnachip.

According to the firm, there are growing concerns among investors that the Magnachip Board did not even consider the higher bid, and have not yet terminated the Wise Road transaction.

On June 15, Needham analyst Rajvindra Gill assigned a Buy rating to the stock with a price target of $30, implying 24.6% upside potential to current levels.

Gill commented, “While we are unfamiliar with this particular consortium of bidders, including where they are officially domiciled, and hence if similar regulatory scrutiny would be required as with the original offer from Wise Road, we are encouraged that another, higher bid of $35 has emerged, which we believe is a closer approximation of the true value of the asset.”

Overall, the stock has a Moderate Buy consensus rating based on 3 Buys and 2 Hold. The MX average analyst price target of $27.50 implies 14.3% upside potential from current levels. Shares of MX have jumped 114.3% over the past year.

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