MagnaChip Semiconductor Corporation (“MagnaChip” or the “Company”) (NYSE: MX) today announced that certain of its wholly-owned subsidiaries have entered into a definitive agreement (the “Agreement”) to sell the Company’s Foundry Services Group and the factory in Cheongju (“Fab 4″), the larger of the Company’s two 8” manufacturing facilities (collectively, the “Target Business”), to a special purpose company (the “SPC”) in South Korea established by Alchemist Capital Partners Korea Co., Ltd. (“Alchemist”) and Credian Partners, Inc. (“Credian”, and together with Alchemist, “AC Consortium”).
Under the terms of the Agreement, the total transaction value is approximately $435 million, consisting of the South Korean won equivalent of $344.7 million in cash based on the exchange rate on the third business day prior to the closing date of the transaction and the SPC’s assumption of statutory severance liabilities attributable to the employees who will be transferred together with the Target Business, which is currently estimated to be approximately $90 million (subject to the then-effective exchange rate). The cash purchase price is subject to a customary working capital adjustment. MagnaChip anticipates it will use net operating loss carryforwards to offset a portion of the tax obligations related to this transaction. Moreover, the Company intends to use the net proceeds from the transaction to significantly reduce debt and strengthen its balance sheet. Taken together, the transaction-related tax exposure is estimated to be up to 15% of the net cash proceeds from the transaction.
MagnaChip’s Chief Executive Officer, YJ Kim, said: “This is an excellent outcome for all our stakeholders, including customers, employees and investors. Importantly, it will allow us to meaningfully improve our balance sheet, and fully focus as a pure-play standard products company on the attractive high-growth opportunities in our Display Solutions and Power Solutions business lines. We look forward to building upon our leadership position in the OLED display driver business and are excited about the emerging MicroLED space. Our Power products portfolio, including Premium Power products, are aligned with the needs of a broad range of markets, and are ideally suited to serve the requirements of the Electric Vehicle segment of the auto market. Finally, we are confident there will also be myriad benefits for the Foundry business and its employees, who will have significant new opportunities as a result of the transaction.”
Under the terms of the Agreement, the SPC will acquire the Target Business. Alchemist and Credian serve as joint general partners of a project fund that established the SPC, while its limited partners consist of SK hynix Inc., one of the largest semiconductor companies in the world, and Korean Federation of Community Credit Cooperatives. Upon the closing of the transaction, approximately 1,500 MagnaChip employees are expected to be transferred to the SPC, which would result in SPC assuming approximately $90 million (subject to the then-effective exchange rate) in statutory severance liabilities recorded on MagnaChip’s balance sheet. The Agreement is subject to customary closing conditions.
“After conducting a thorough strategic evaluation process of the Foundry business and Fab 4, the Board of Directors and management team concluded that this transaction was the best option to maximize value for our shareholders,” said Nader Tavakoli, Chairman of the Board of MagnaChip.
“Following the completion of this sale, MagnaChip will be streamlined operationally, largely freed of interest expense and we believe will be ideally positioned for continued future success.”
MagnaChip is the largest independent supplier of organic light emitting diodes (OLED) display driver integrated circuits (DDICs) to the world’s top two panel manufacturers for smartphones. The Company’s large portfolio of OLED DDICs includes multiple 28-nanometer display drivers with the industry’s lowest power, a key requirement for smartphones, including upcoming 5G and foldable models. The Company’s Power Solutions business is a leading provider of standard products, including battery field effect transistors (FETS) to increase power efficiency in smartphone batteries, as well as premium products such as super junction metal oxide semiconductor field effect transistors (MOSFETs), insulated-gate bipolar transistors (IGBTs) and power integrated circuits for consumer, TV, communications and industrial applications. The Company will continue to operate its Power Discrete 8″ fab (Fab 3, located in Gumi, Korea) used primarily to manufacture wafers for Power standard products and non-OLED display products.
The transaction is expected to close within approximately four to six months, subject to customary closing conditions