Magnachip Semiconductor recently announced it agreed to be purchased by Wise Road Capital, a Chinese private equity firm, for $1.4 billion. The chipmaker’s shareholders will receive a payout that is 54 percent higher than its share price as of March 2.
Wise Road intends to turn the company into an industry-leading display and power component manufacturer once the transaction closes.
Both parties expect the sale will be completed by the second half of this year.
Magnachip noted that its acquisition by Wise Road is an all-cash deal that is contingent on outside financing. The firm indicated that its board of directors had approved the transaction. The ownership transfer needs the authorization of its shareholders and national regulators to proceed.
CEO YJ Kim argued that the sale is in the best interest of its stakeholders, employees, and customers. He said the deal would accelerate the chipmaker’s current growth strategy. The executive also noted that Wise Road’s semiconductor space experience could foster the company’s expansion.
Established in 2016, Wise Road focuses on investing in businesses that cultivate greater urbanization, connectivity, and green living. The group has made backing promising semiconductor manufacturers one of its priorities. It owns Nexperia, a Dutch automotive component vendor, and JLQ Technology, a Chinese smartphone part maker.
Wise Road does not intend to shake up Magnachip’s structure post-acquisition. The private equity firm plans to keep its management team intact and continue basing its operations out of South Korea.
How Magnachip Benefits From Being Acquired by Wise Road
Last March, Magnachip revealed it would sell off its foundry services division as part of an organization-wide streamlining initiative. The effort proved successful as it enabled the company to grow its business and improve its liquidity. Its sales to Wise Road seems like a logical next step in its evolution.
The chipmaker specialized in fabricating automotive power management ICs and OLED display drivers using 200mm wafers. In recent years, the firm struggled with diminishing demand for its products amid competition from providers with more advanced nodes. But its manufacturing technology has become highly sought after again following a market shift in late 2020.
Following the outbreak of COVID-19, personal transport sales plummeted worldwide. But after the world began adjusting to the pandemic’s impact, interest in car ownership rebounded sharply. In fact, the demand for new vehicles contributed to a global shortage of electronic parts. As a result, interest in 8-inch wafers has become so strong, secondhand 200mm equipment has become a hot commodity.
Provided the transaction goes through, Magnachip has the potential to significantly improve its earnings amid worldwide semiconductor scarcity.
The firm will be in a better position to realize its market opportunities with Wise Road’s financial support and guidance. In addition, Seoul recently declared it would spend $176 billion to bolster its domestic automotive component sector. Since its new owner is keeping its headquarters in South Korea, it might gain access to that funding.
By this time next year, Magnachip could be a much more significant player in the PMIC and OLED driver segments.