Chinese Fund Terminates $1.4 Billion Takeover of Chip Maker Magnachip Due to US Blockage
Magnachip, a South Korean semiconductor company listed on the New York Stock Exchange, announced on Monday that its merger with Chinese private equity firm Wise Road Capital was officially terminated because the case was not approved by the Committee on Foreign Investment in the United States (CFIUS). According to the previous agreement between the two parties, Wise Road Capital will pay $70.2 million as a termination fee to Magnachip.
On March 29 this year, Magnachip announced that it would accept the acquisition proposal of Wise Road Capital. At that time, the firm planned to put forward a takeover bid to acquire all the shares of Magnachip at a premium of 54% and a price of $29 per share, with an overall acquisition amount of $1.4 billion. The transaction was expected to be completed in the second half of 2021, before which it needed to meet some customary closing conditions, including receiving approval from shareholders and regulators.
The acquisition needed to be approved by the governments of South Korea, the United States and China. Since the South Korean government doesn’t consider Magnachip to be involved with sensitive national core technology, there was no need to block the acquisition. The Chinese government approved the acquisition in June.
But the judgment of the United States is quite the opposite. Since May this year, CFIUS began to investigate the acquisition and then quickly designated the display driver chip (DDI) technology for organic light-emitting diode (OLED) panel held by Magnachip as a “national core technology”, creating excuses to prevent the acquisition, and finally delayed approving the acquisition on the grounds of “threatening national security”.
Magnachip was founded in 1979 as the semiconductor division of LG Group. In October 1999, Hyundai Electronics merged with LG Semiconductor and became Hynix Semiconductor. Hyundai then split its semiconductor business to form Hynix in 2003. In October 2004, after Magnachip was split from SK Hynix, it was acquired by Citigroup Venture Capital, and changed its name to Magnachip. However, its R&D center and production base are all in South Korea, and most of its top executives are Korean.
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According to public data, Magnachip is one of the companies that dominates the global AMOLED driver chip market, and is also the first semiconductor company to develop OLED driver chips with 28nm process technology. It has a number of related patents. Last year, the company achieved sales revenue of $507 million and operating profit of $32.645 million.
In addition to this acquisition, SK Hynix’s previous plan to put the semiconductor equipment of Dutch ASML company into a Wuxi factory in China was also jeopardized because of the White House’s opposition.