LX Group is pushing to acquire MagnaChip Semiconductor, a domestic system semiconductor company listed in the US. It is interpreted that Koo Bon-joon, chairman of LX Group, which became independent from LG Group last year, chose M&A to expand the semiconductor business, which is his long-awaited dream. According to the investment banking (IB) industry on the 26th, LX Group has decided to participate in the acquisition of Magnachip Semiconductor and plans to submit a letter of intent (LOI) as early as next week.
MagnaChip focuses on the design and production of display driver integrated circuits (DDIs). It occupies about 30% of the market share in this field, ranking second in the world after Samsung Electronics. Last year, it recorded an operating profit before amortization (EBITDA) of $64.13 million (about 80 billion won) on sales of $474 million (about 591.5 billion won).
Although MagnaChip’s headquarters and factories are located in Korea, its stock is listed on the New York Stock Exchange in the United States. As of the closing price on the 25th (local time), the market capitalization is $674.76 million (about 843 billion won). The transaction volume, which reflects the management premium, is expected to reach KRW 1 trillion.
LX Group is conducting DDI business like MagnaChip through its affiliate, LX Semicon (formerly Silicon Works). It is evaluated that the M&A synergy effect will be clear as it can achieve ‘economies of scale’.
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Silicon Works (currently LX Semicon) is said to be one of the affiliates that Chairman Koo Bon-joon (pictured) showed the most attachment to in 2020 when he was preparing for separation from the LG Group. Although it was evaluated as ‘surprising’ due to its low awareness compared to major affiliates within the group, Chairman Koo looked at the growth potential of the fabless (semiconductor design) field. Even after the division of the company in May of last year, it is known that he has a personal office at the headquarters of LX Semicon in Yangjae-dong, Seoul, and takes care of the semiconductor business to the extent that he goes to work here at least once a week.
LX Semicon is emerging as the main pillar of the group, achieving the highest performance since its foundation in the midst of a shortage of DDI semiconductors. Last year, it recorded 1.8988 trillion won in sales and 369.6 billion won in operating profit. Compared to 2020, sales increased by 63% and operating profit increased by 292%.
MagnaChip Semiconductor is evaluated as the most suitable property to speed up LX Semicon’s business expansion. This is because, as LX Semicon has run the same DDI business as Magnachip, ‘economies of scale’ effect is expected. In addition, MagnaChip is preparing for mass production in the second half of the year by entering the automotive power semiconductor market, which is currently in short supply. It is evaluated that LX Semicon, which accounts for more than 75% of its sales, is focused on DDI for LG Group, and can serve as an opportunity to diversify its customers and product groups.
There are many possibilities for acquisition. The competition for hegemony between the US and China over the semiconductor industry can be an opportunity for LX. MagnaChip’s board of directors accepted a 1.5 trillion won tender offer (tender offer) from Wise Road Capital, a Chinese private equity fund (PEF) last year. However, the U.S. Department of the Treasury’s Foreign Investment Commission (CFIUS), concerned about the leak of semiconductor technology to China, blocked the sale and the transaction was canceled. MagnaChip has since found a new owner in Korea. It is known that SK Hynix, Kolon, KCC, and Wonik pulled out while considering the acquisition. It is expected that LX will be able to negotiate from an advantageous position as it is not easy to sell overseas and there are not many competitors among domestic companies.
The fact that MagnaChip Semiconductor is a listed company in the United States is a factor that increases uncertainty. In order to acquire a US listed company, at least 1 trillion won is required because all shares must be purchased through a tender offer. The acquisition price may be higher depending on the direction of the share price.
It is highly likely that LX Semicon will be the acquirer within the LX Group. LX Semicon has close to 600 billion won in cash and short-term financial products. The industry is also paying attention to LX Group’s M&A expansion instinct. This is because, after taking over Korea Glass Industry for about 600 billion won in February, less than a year after the separation, it entered into a trillion-dollar transaction.
Reporter Jun-ho Cha
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