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Aug 5, 2021
-15.10%
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$MX Baby Rockets - Magnachip BuyOut Talks - $29 Offer Trading At $21
bullish
Ok, first off, this trade is a baby rocket trade. You won't make it to the moon with this one, but it'll likely refuel your thrusters. I'm thinking about a 20-40% bagger🚀🚀 as opposed to the 1000% MEME baggers 🚀🚀. It's not pumpable, squeezable, whatever you wanna call it since there's a cap on how high the stock can go. $29 if buyout goes through, $26 probs if we get some good news. There's no crazy upside hype. It's a stock with pretty clear cut risk and reward.
Company Overview
So what is Magnachip. Magnachip, $MX, is a semi-conductor company based in South Korea that produces OLED display drivers as well as power management integrated circuits. Their OLED tech goes into smartphones, TVs, as well as automobiles. Their power integrated circuits are used in automotive, 5g, and the energy industry. The company pulled in about 500M in revenue last year and has been around for 15 years and owns a portfolio of approximately 1,200 registered patents and pending applications. So it's not a non-sense vapor-ware company.
Why Magnachip
Magnachip is supposedly such a good investment that two firms have offered to buyout Magnachip one at $29 and one at $35.
- Wiseroad Capital offered to buy the firm at at $29:
- Cornucopia Investment Partners offers to buy the firm at $35:
Note that Magnachip is trading at $21 right now. 😮😮😮😮😮😮😮
The reason why $MX is trading at $21 right now as opposed to $29 is because the US government (as well as South Korean government) has stepped in to 'review' this buyout. They don't want to lose another semiconductor company to China. Wiseroad Capital is a Chinese private equity firm. And China = Very Bad. So buying $MX means you take on the risk that the deal falls through cuz US gov thinks China = Bad.
With that said, even with that risk, IMO, it makes sense to buy $MX 🚀🚀. Here are a few reasons.
- I already mentioned that big boy professionals value this stock at $29 and $35. This isn't some random analyst saying it should be worth $X. This is an actual offer and someone is willing to drop billions on this company. With that said, even without the offers do some Googling and you can see that average price target for $MX is around $26.
- The merger announcement with Magnachip occurred at the end of March 2021 (although some say there had been whispers since January), sending $MX from about $20 to $26. We are now basically at the same price PRIOR to the merger announcement. And if you think the whispers occurred in Jan (I can't find any articles, then pre-merger price is $18). The press release cites $18.83. Regardless, either most people think that the merger is not going to happen, or this stock is a victim of the tech/small cap crash we've seen in the past month. But we are basically at pre-merger prices.
- $MX already accepted a deal from Wiseroad and it is just subject to review. According to SA, If the merger is terminated because, MX accepts a superior proposal, it would be required to pay $42.1 million (roughly 3 percent of the transaction value) to Wise Road. If the deal is terminated for the following, Wise Road is required to pay MX the respective termination fee: $70.2 million (5 percent) for failing to receive U.S. regulatory approval, $84.3 million (6 percent) for failure to receive South Korean regulatory approval, and $105.3 million (7.5 percent) for any other reason notwithstanding U.S. and South Korean approvals. In OTHER WORDS, even IF, the deal falls through, $MX will get paid.
- Also, even if this deal falls through, it's not unlikely that another investment firm will try to buy out $MX. Or, $MX just does so well in the next few years that it eventually trades at $29.
Do I think the deal will go through? Honestly, I'm just an ape so no idea. But note that most of Magnachip's sales are to Samsung as well as to companies in China.
Meaning, it rarely sells to companies in the US. In other words, from a trade and technological standpoint, the US doesn't stand to lose much if China does end up owning the company. South Korea, could stand to lose out. But Wiseroad was willing to give up 84M if South Korea does not approve the deal.
So when is the deal expected to go through? Some say by the end of this year. But recently, the US announced that it plans to be done with it's part of the review by 9/13.
As for when South Korea will be done? Who knows. I'd imagine it would be shortly after . OR, South Korea may have even been ok with it in the first place, and are just waiting for the US. Who knows.
But the deadline to keep in mind is 9/13, and obviously it could be A LOT SOONER. Personally, I'm thinking, if the buyout gets OKed, $MX goes to $26 after confirmation and then goes to $29 eventually. But, if it falls through, it may eventually be bought out for even more! Someone was willing to pay $35 at one point.
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Disclosure: I am long $MX. Fellow WSBs should carefully consider their investment objectives and risks before yoloing into $MX. Opinions and statements regarding the financial markets are based on current market conditions and constitute my judgment. They are subject to change without notice. My bullish sentiment is my opinion and was reached after doing intensive due diligence on the industry and company.
Also, DM or comment for sources. Seems like posts get removed if they have links. I've decided I'll just screenshot sources and if you want the link, just comment below.
Comments
5 min
29.00
Target Price
9/ 10
Confidence
2-6 Months
Timeframe
Share
Earnings Release
News
SEC Filing
Sentiment
Other Catalyst
MX Channel
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