Independent Research, Turtles all the way down

Turtles all the way down

Independent Research

Writing short articles about mis-priced boring stocks around the world.

Equity Bottom-Up

MagnaChip Semiconductor Corp / Equity Bottom-Up

<ul><li>Magnachip is an interesting merger arb situation with only modest downside. A Chinese firm has previously tried to acquire this for $29.</li><li>But that was shot down by US regulators. Currently stock trades just over $15.</li><li>I have been in and out of this stock twice already, and I think a lot of people are just fed up waiting for the company to sell itself so far.</li></ul>

Magnachip is an interesting merger arb situation with only modest downside. A Chinese firm has previously tried to acquire this for $29.But that was shot down by US regulators. Currently stock trades just over $15.I have been in and out of this stock twice already, and I think a lot of people are just fed up waiting for the company to sell itself so far.

AlphaSituations-Event/Catalyst Driven Research, AlphaSituations

Robert Sassoon

AlphaSituations-Event/Catalyst Driven Research

AlphaSituations

Since its establishment, AlphaSituations has delivered a track record of outperformance with a hit rate of winners of more than 70% of its portfolio of ideas generating annualized average returns of 20%. In January 2022, AlphaSituations was contracted by Water Tower Research, an investor engagement and stakeholder communication platform to provide coverage of Special Situations

Event-Driven

Among the universe of live M&amp;A deals we monitor (US M&amp;A deals of  &gt;$400MN), which we list below,  there are several deals where the prevailing spread  is above 10% offering  the potential for very  annualized returns  of &gt;50% based on their targeted closing dates.  Usually when the market is offering IRRs of that magnitude, it is indicating there is a high risk that those deals do not complete at all or, if they do,  under revised terms that are less favorable to the target company shareholders or that there is significant timing risk not originally anticipated. When it comes to spreads, Mr. Market may be right more often than not, but most definitely not always. These situations may not be that common, but it is those misunderstood situations which  provides some that we at AlphaSituations attempt to identify. <h3>The Search For Compelling Spreads</h3><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/237/378/original/image_82700697241635169253114.png?1635169255" class="editor-image img-responsive" data-smartkarma-image-id="237378"></figure>Source: AlphaSituations In the list above , the stand out spread remains the Wise Road Capital/ <a href="https://www.smartkarma.com/entities/magnachip-semiconductor-corp" target="_blank" data-smartkarma-citation="entities:28052:1" rel="noopener">MagnaChip Semiconductor Corp (MX US)</a> situation. This is one we have covered in previous insights, most recently in our June 29, 2021 publication: MergerTalk: Intriguing US Merger Spreads - Why Magnachip Semiconductor is at the top of our list. Since that Insight, CFIUS did initially block the deal on national security grounds (or at least left it to President Biden to decide), but subsequently agreed to the transactional parties request to withdraw and re-file their submission  in order to permit further discussion with CFIUS concerning potential options for permanently mitigating risks to the US national security that have been identified by CFIUS. This triggered a new CFIUS review period for the merger  commencing on September 14, 2021 which is expected to conclude no later than October 28, 2021. With that date only a few days away (although CFIUS has the option to extend this review process by undertaking a 45-day investigation), given the ~61% spread, the market is clearly dismissing the prospect that CFIUS will change its stance the second time around. Nevertheless, we  maintain that MX has a fundamental safety net at its current valuation (further supported by the strong 3Q 2021 earnings reported on October 25, 2021  and could remain a buyout target should the Wise Road transaction be ultimately  blocked. We will continue to monitor this situation.In this insight, we focus  on another more intriguing spreads - the Garnet Faith/  <a href="https://www.smartkarma.com/entities/51-job-inc-adr" target="_blank" data-smartkarma-citation="entities:532:1" rel="noopener">51 Job Inc Adr (JOBS US)</a>  merger transaction, which also has a China theme to it. Below, we explore the reasons for the wide spread and assess the risks. We conclude that the odds remain heavily in favor of deal consummation with the current ~24% spread offering a lucrative entry point for arbs.

Among the universe of live M&amp;A deals we monitor (US M&amp;A deals of  &gt;$400MN), which we list below,  there are several deals where the prevailing spread  is above 10% offering  the potential for very  annualized returns  of &gt;50% based on their targeted closing dates.  Usually when the market is offering IRRs of that magnitude, it is indicating there is a high risk that those deals do not complete at all or, if they do,  under revised terms that are less favorable to the target company shareholders or that there is significant timing risk not originally anticipated. When it comes to spreads, Mr. Market may be right more often than not, but most definitely not always. These situations may not be that common, but it is those misunderstood situations which  provides some that we at AlphaSituations attempt to identify. The Search For Compelling SpreadsSource: AlphaSituations In the list above , the stand out spread remains the Wise Road Capital/ MagnaChip Semiconductor Corp (MX US) situation. This is one we have covered in previous insights, most recently in our June 29, 2021 publication: MergerTalk: Intriguing US Merger Spreads - Why Magnachip Semiconductor is at the top of our list. Since that Insight, CFIUS did initially block the deal on national security grounds (or at least left it to President Biden to decide), but subsequently agreed to the transactional parties request to withdraw and re-file their submission  in order to permit further discussion with CFIUS concerning potential options for permanently mitigating risks to the US national security that have been identified by CFIUS. This triggered a new CFIUS review period for the merger  commencing on September 14, 2021 which is expected to conclude no later than October 28, 2021. With that date only a few days away (although CFIUS has the option to extend this review process by undertaking a 45-day investigation), given the ~61% spread, the market is clearly dismissing the prospect that CFIUS will change its stance the second time around. Nevertheless, we  maintain that MX has a fundamental safety net at its current valuation (further supported by the strong 3Q 2021 earnings reported on October 25, 2021  and could remain a buyout target should the Wise Road transaction be ultimately  blocked. We will continue to monitor this situation.In this insight, we focus  on another more intriguing spreads - the Garnet Faith/  51 Job Inc Adr (JOBS US)  merger transaction, which also has a China theme to it. Below, we explore the reasons for the wide spread and assess the risks. We conclude that the odds remain heavily in favor of deal consummation with the current ~24% spread offering a lucrative entry point for arbs.

MergerTalk: Intriguing US Merger Spreads-A 23% Spread, But Odds on 51job.com Privatization Completes

Founder/CEO of ROK Advisory, ROK Advisory LLC

Ken S. Kim

Founder/CEO of ROK Advisory

ROK Advisory LLC

ROK is an independent research advisory firm. We guide you to minimize the information gap between foreign and local investors in Northeast Asia with a focus in Korea, Taiwan and Japan.

Independent Research Advisory Firm

<a href="https://www.smartkarma.com/entities/lg-household-health-care" target="_blank" data-smartkarma-citation="entities:6501:1" rel="noopener">LG Household &amp; Health Care (051900 KS)</a> is down 22% from peak and has really taken a tumultuous fall to a point where it begs the question "Does the fall in share price justify its outlook or is LG being sold for the wrong reasons?"

LG Household &amp; Health Care (051900 KS) is down 22% from peak and has really taken a tumultuous fall to a point where it begs the question "Does the fall in share price justify its outlook or is LG being sold for the wrong reasons?" 

LG H&H (051900) - Systematic or Unsystematic Risks Being Priced In?

MagnaChip Semiconductor Corp / Event-Driven

While the vast majority of mergers and acquisitions successfully close, there is always a chance that one will not. The greater the potential issues, the greater the risk profile of the transaction and the wider the spread tends to be, and thus the greater potential profit for the merger arbitrage investor. There are typically 4 main reasons why a deal may end up in jeopardy.At the top of this list comes the risk of Regulatory/Antitrust Issues. Remedial solutions often alleviate the risks,  but there are, of course, cases where there may be little room for remedy  deemed adequate enough by regulators to overcome its anti-competitive or other concerns like national security when it comes to cross-border transactions (US Trump Blocks Lattice Acquisition for Security Risk - China Will Have to Build Its Own Now. Read more: <a href="https://skr.ma/rFdfj" target="_blank" rel="noopener">https://skr.ma/rFdfj).</a>When it comes to the latter category, there may be cases when regulatory overview enters a grey area where a  political agenda comes into play.  Although, not publicly broadcast in this way, this suspicion has become more prevalent in transactions  particularly involving  Chinese entities such as the Canyon Bridge/ <a href="https://www.smartkarma.com/entities/lattice-semiconductor-corp" target="_blank" data-smartkarma-citation="entities:7855:1" rel="noopener">Lattice Semiconductor (LSCC US)</a> case cited above or  transactions even between non-Chinese entities, which still require approval from China's regulators such as the <a href="https://www.smartkarma.com/entities/qualcomm-inc" target="_blank" data-smartkarma-citation="entities:969:1" rel="noopener">Qualcomm Inc (QCOM US)</a> / <a href="https://www.smartkarma.com/entities/nxp-semiconductors-nv" target="_blank" data-smartkarma-citation="entities:9801:1" rel="noopener">Nxp Semiconductors Nv (NXPI US)</a> deal which was effectively stopped in its tracks in 2018 by the Chinese regulatory review process.The other key risks include the prospect of  Shareholder Rejection from either the buying or target company's shareholders, which more often that not tends to occur when dissenting activists get involved (Huntsman / Clariant: M&amp;A "Acquirer" Activism - Can Corvex and 40 North Disrupt? Read more: <a href="https://skr.ma/ned3" target="_blank" rel="noopener">https://skr.ma/ned3</a> ) Material Adverse Events could lead to an abandonment of the transaction or a price renegotiation, of which there were a several examples last year in the wake of the Covid-19 pandemic (<a href="https://www.smartkarma.com/entities/simon-property-group-inc" target="_blank" data-smartkarma-citation="entities:6472:1" rel="noopener">Simon Property Group (SPG US)</a> / <a href="https://www.smartkarma.com/entities/taubman-centers-inc" target="_blank" data-smartkarma-citation="entities:11757:1" rel="noopener">Taubman Centers (TCO US)</a> ,  <a href="https://www.smartkarma.com/entities/lvmh-moet-hennessy-louis-vui" target="_blank" data-smartkarma-citation="entities:21072:1" rel="noopener">Lvmh Moet Hennessy Louis Vuitton (MC FP)</a> / <a href="https://www.smartkarma.com/entities/tiffany-co" target="_blank" data-smartkarma-citation="entities:14729:1" rel="noopener">Tiffany &amp; Co (TIF US)</a>), and  Financing Conditions which increase funding uncertainty, are the other key risks that M&amp;A transactions can typically confront. One recent example of the latter was the the 4 years plus China Oceanwide/ <a href="https://www.smartkarma.com/entities/genworth-financial-inc-cl-a" target="_blank" data-smartkarma-citation="entities:3876:1" rel="noopener">Genworth Financial Inc Cl A (GNW US)</a> merger transaction saga which ultimately collapsed despite successfully navigating challenging regulatory obstacles because of  Oceanwide's inability to fund its proposed $2.7BN acquisition of GNW.While even broken deals do not necessarily lead to broken investments as we highlighted in our insight back in November 2020 (MergerTalk:Broken Deals Do Not Necessarily Lead To Broken Investments. Read more: <a href="https://skr.ma/nKzya" target="_blank" rel="noopener">https://skr.ma/nKzya</a>), it is most advantageous to find merger arbitrage opportunities that offer a wide spread, which misprice deal failure risk or at the very least provides some sort of fundamental safety net should the deal not move to completion. These situations may not be that common, but it is those misunderstood situations which we at AlphaSituations attempt to identify. One such example of the recent past was the the <a href="https://www.smartkarma.com/entities/t-mobile-us-inc" target="_blank" data-smartkarma-citation="entities:922:1" rel="noopener">T Mobile Us Inc (TMUS US)</a> / <a href="https://www.smartkarma.com/entities/sprint-corp" target="_blank" data-smartkarma-citation="entities:921:1" rel="noopener">Sprint Corp (S US)</a> merger transaction. With Wall Street for the most part giving little odds of this transaction being able to successfully overcome the regulatory review process, we took a contrarian view at the time arguing that the outcome of this review process was far from clear-cut with various factors at play (MergerTalk: T-Mobile US/Sprint-Why This Will Close &amp; Why Sprint Shareholders Can Expect To Prosper. Read more: <a href="https://skr.ma/1RSwG" target="_blank" rel="noopener">https://skr.ma/1RSwG).</a> The merger was consummated at the end of 1Q 2020.Among the universe of live M&amp;A deals we monitor (US M&amp;A deals of  &gt;$400MN), which we list below,  there are several deals  with the potential for annualized of &gt;20%.  <h3>The Search For Compelling Spreads</h3><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/216/021/original/image_50950126721624984312205.png?1624984313" class="editor-image img-responsive" data-smartkarma-image-id="216021"></figure>Source: AlphaSituationsThere may be  several candidates in this list that deserve closer scrutiny which we intend to follow up on, but in this Insight, we update our thoughts on the Wise Road Capital/ <a href="https://www.smartkarma.com/entities/magnachip-semiconductor-corp" target="_blank" data-smartkarma-citation="entities:28052:1" rel="noopener">MagnaChip Semiconductor Corp (MX US)</a> transaction, which we believe offers the most intriguing and compelling  spread in this list.

While the vast majority of mergers and acquisitions successfully close, there is always a chance that one will not. The greater the potential issues, the greater the risk profile of the transaction and the wider the spread tends to be, and thus the greater potential profit for the merger arbitrage investor. There are typically 4 main reasons why a deal may end up in jeopardy.At the top of this list comes the risk of Regulatory/Antitrust Issues. Remedial solutions often alleviate the risks,  but there are, of course, cases where there may be little room for remedy  deemed adequate enough by regulators to overcome its anti-competitive or other concerns like national security when it comes to cross-border transactions (US Trump Blocks Lattice Acquisition for Security Risk - China Will Have to Build Its Own Now. Read more: https://skr.ma/rFdfj).When it comes to the latter category, there may be cases when regulatory overview enters a grey area where a  political agenda comes into play.  Although, not publicly broadcast in this way, this suspicion has become more prevalent in transactions  particularly involving  Chinese entities such as the Canyon Bridge/ Lattice Semiconductor (LSCC US) case cited above or  transactions even between non-Chinese entities, which still require approval from China's regulators such as the Qualcomm Inc (QCOM US) / Nxp Semiconductors Nv (NXPI US) deal which was effectively stopped in its tracks in 2018 by the Chinese regulatory review process.The other key risks include the prospect of  Shareholder Rejection from either the buying or target company's shareholders, which more often that not tends to occur when dissenting activists get involved (Huntsman / Clariant: M&amp;A "Acquirer" Activism - Can Corvex and 40 North Disrupt? Read more: https://skr.ma/ned3 ) Material Adverse Events could lead to an abandonment of the transaction or a price renegotiation, of which there were a several examples last year in the wake of the Covid-19 pandemic (Simon Property Group (SPG US) / Taubman Centers (TCO US) ,  Lvmh Moet Hennessy Louis Vuitton (MC FP) / Tiffany &amp; Co (TIF US)), and  Financing Conditions which increase funding uncertainty, are the other key risks that M&amp;A transactions can typically confront. One recent example of the latter was the the 4 years plus China Oceanwide/ Genworth Financial Inc Cl A (GNW US) merger transaction saga which ultimately collapsed despite successfully navigating challenging regulatory obstacles because of  Oceanwide's inability to fund its proposed $2.7BN acquisition of GNW.While even broken deals do not necessarily lead to broken investments as we highlighted in our insight back in November 2020 (MergerTalk:Broken Deals Do Not Necessarily Lead To Broken Investments. Read more: https://skr.ma/nKzya), it is most advantageous to find merger arbitrage opportunities that offer a wide spread, which misprice deal failure risk or at the very least provides some sort of fundamental safety net should the deal not move to completion. These situations may not be that common, but it is those misunderstood situations which we at AlphaSituations attempt to identify. One such example of the recent past was the the T Mobile Us Inc (TMUS US) / Sprint Corp (S US) merger transaction. With Wall Street for the most part giving little odds of this transaction being able to successfully overcome the regulatory review process, we took a contrarian view at the time arguing that the outcome of this review process was far from clear-cut with various factors at play (MergerTalk: T-Mobile US/Sprint-Why This Will Close &amp; Why Sprint Shareholders Can Expect To Prosper. Read more: https://skr.ma/1RSwG). The merger was consummated at the end of 1Q 2020.Among the universe of live M&amp;A deals we monitor (US M&amp;A deals of  &gt;$400MN), which we list below,  there are several deals  with the potential for annualized of &gt;20%.  The Search For Compelling SpreadsSource: AlphaSituationsThere may be  several candidates in this list that deserve closer scrutiny which we intend to follow up on, but in this Insight, we update our thoughts on the Wise Road Capital/ MagnaChip Semiconductor Corp (MX US) transaction, which we believe offers the most intriguing and compelling  spread in this list.  

MergerTalk: Intriguing US Merger Spreads - Why Magnachip Semiconductor Is At The Top Of Our List

On March 26, 2021, it was announced that <a href="https://www.smartkarma.com/entities/magnachip-semiconductor-corp" target="_blank" data-smartkarma-citation="entities:28052:1" rel="noopener">MagnaChip Semiconductor Corp (MX US)</a> had entered into an agreement to be acquired by Wise Road Capital in all cash go-private transaction of $29 per share placing  an equity value of ~$1.4BN on MX. MX is the second largest company in the world after Samsung Electronics in the OLED panel driving chip field, and is listed on the NYSE, while Wise Road Capital is a Chinese owned private equity fund that is focused on investing into high tech companies globally. The transaction is targeted to be completed in the second half of the year.With the prevailing share price of $25.29 as at the close of business on April 12, 2021, the spread at ~15% offers a potentially attractive IRR of between 20% and 32% should the transaction close by the end of December or September. This insight lays out  why think the spread indicates a rewarding risk-arb opportunity.

On March 26, 2021, it was announced that MagnaChip Semiconductor Corp (MX US) had entered into an agreement to be acquired by Wise Road Capital in all cash go-private transaction of $29 per share placing  an equity value of ~$1.4BN on MX. MX is the second largest company in the world after Samsung Electronics in the OLED panel driving chip field, and is listed on the NYSE, while Wise Road Capital is a Chinese owned private equity fund that is focused on investing into high tech companies globally. The transaction is targeted to be completed in the second half of the year.With the prevailing share price of $25.29 as at the close of business on April 12, 2021, the spread at ~15% offers a potentially attractive IRR of between 20% and 32% should the transaction close by the end of December or September. This insight lays out  why think the spread indicates a rewarding risk-arb opportunity.

MergerTalk: Magnachip Semiconductor Corp (MX US)-Wising Up To An Attractive Risk-Arb Opportunity

South Korea

Magnachip Semiconductor Corporation designs, develops, and manufactures mixed-signal and digital multimedia semiconductors.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

MagnaChip Semiconductor Corp (MX US)

Magnachip Merger Arb

Magnachip is an interesting merger arb situation with only modest downside. A Chinese firm has previously tried to acquire this for $29.

Turtles all the way down

MergerTalk: Intriguing US Merger Spreads-A 23% Spread, But Odds on 51job.com Privatization Completes

Precedent suggests that the odds heavily favor that this Go-Private deal will be consummated. With JOBS only 4% above its undisturbed price, the ...

Robert Sassoon

LG H&H (051900) - Systematic or Unsystematic Risks Being Priced In?

LG H&H is trading at half the valuations of its global comps. Can management right the ship or actually does it even need to?

Ken S. Kim

MergerTalk: Intriguing US Merger Spreads - Why Magnachip Semiconductor Is At The Top Of Our List

While the M&A picture for MX US may be in a state of flux, it does present itself as a potentially very lucrative trade with a favorable risk...

Robert Sassoon

MergerTalk: Magnachip Semiconductor Corp (MX US)-Wising Up To An Attractive Risk-Arb Opportunity

Regulatory concerns on this deal may be prove to be wide of the mark, but in any event that may not matter suggesting that this spread will turn...

Robert Sassoon

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)