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What’s the Big Deal about Magnachip’s Technology?
Magnachip entered into an agreement with Wise Road Capital under which Wise Road would be purchasing Magnachip for $29/share. While the South Korean Ministry of Trade, Industry, and Energy initially approved the transaction the Korean government expressed the view that Magnachip’s had ‘core’ technology after a bit of cajoling by the US Treasury Department, citing an investigation by the Committee on Foreign Investment in the US (CFIUS). While Magnachip’s production is in South Korea, it is a Delaware company and therefore under the auspices of CFIUS, and with Wise Road being a Chinese entity.
Complicating things further, Magnachip received another offer, roughly 20% higher than the Wise Capital offer from Cornucopia, another Chinese & Hong Kong group of investors. In mid-June, the company received notice from the US Department of the Treasury essentially creating a standstill action, preventing any further movement toward the completion of either deal, until CFIUS makes a final conclusion. On August 27th the company received notice from Treasury indicating that CFIUS had identified ‘risks to the national security of the United States as a result of the merger’ and could not identify mitigation measures that would alleviate the identified risks.
CFIUS is expected to refer the issue to the President for a final decision. There is no assurance that either the company or the acquirer would agree to any proposals that would satisfy CFIUS, so until the President makes a ruling, the deal is on hold.
Magnachip entered into an agreement with Wise Road Capital under which Wise Road would be purchasing Magnachip for $29/share. While the South Korean Ministry of Trade, Industry, and Energy initially approved the transaction the Korean government expressed the view that Magnachip’s had ‘core’ technology after a bit of cajoling by the US Treasury Department, citing an investigation by the Committee on Foreign Investment in the US (CFIUS). While Magnachip’s production is in South Korea, it is a Delaware company and therefore under the auspices of CFIUS, and with Wise Road being a Chinese entity.
Complicating things further, Magnachip received another offer, roughly 20% higher than the Wise Capital offer from Cornucopia, another Chinese & Hong Kong group of investors. In mid-June, the company received notice from the US Department of the Treasury essentially creating a standstill action, preventing any further movement toward the completion of either deal, until CFIUS makes a final conclusion. On August 27th the company received notice from Treasury indicating that CFIUS had identified ‘risks to the national security of the United States as a result of the merger’ and could not identify mitigation measures that would alleviate the identified risks.
CFIUS is expected to refer the issue to the President for a final decision. There is no assurance that either the company or the acquirer would agree to any proposals that would satisfy CFIUS, so until the President makes a ruling, the deal is on hold.
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Barry Young
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