We first wrote about the MagnaChip opportunity in December 2021 after their $1.4 billion sale to Wise Road Capital fell apart. Soon after that, we wrote about the $75 million stock buyback plan which included a $37.5 million accelerated buyback. This week we got the news that the accelerated buyback is complete.

SEOUL, South Korea, March 14, 2022 /PRNewswire/ -- MagnaChip Semiconductor Corporation ("MagnaChip Corp." or the "Company") (NYSE: MX), announced today that the Company has completed its previously announced repurchase of $37.5 million of its common stock, pursuant to its accelerated stock repurchase agreement (the "ASR Agreement") with JPMorgan Chase Bank, National Association ("JPM"). MagnaChip repurchased approximately two million shares at an average price of $18.51.

$37.5 million at an average price of $18.51 is 2.03 million shares. The latest earnings report for year-end 2021 showed 45.66 million shares outstanding. So MagnaChip repurchased approximately 4.4% of their shares, and the buyback is ongoing. We would like to see MagnaChip increase both the size and pace of the stock buyback while the stock price is below $20. (Last year’s buyout price was $29/share).

In our most recent writeup in January we walked through the MX 3.0 strategy and mentioned the challenges with wafer supply. The supply problems persist, but they are good problems, in our view. We expect MagnaChip will soon announce a long-term supply agreement. According to Matt Turk, MagnaChip CEO YJ Kim indicated the company is finalizing a long-term wafer supply deal. This deal could require them to invest $100 million or more of their existing balance sheet cash. Once they resolve their supply challenges, management will be able to right-size the balance sheet and hopefully increase funding for further stock buybacks. In our view, MagnaChip could increase its current buyback program by $50 million to $75 million later this year and still have ample cash on the balance sheet and zero debt. For now, MagnaChip is sitting in the catbird seat with an absurd amount of excess cash on the balance sheet making it attractive to potential buyers.

You may have heard that COVID is surging in South Korea. However, since MagnaChip is already supply constrained, COVID is unlikely to have a material impact on operations. MagnaChip CEO YJ Kim recently reiterated his view that the first quarter of 2022 will be the slowest quarter this year mostly due to supply challenges. For now, we have to remain patient as the “for sale” process plays out. There were reports in January that JP Morgan reached out to potential buyers of the company. This process can take some time, but an offer announcement can materialize at any moment, just like it did last year. This time around, we expect management will focus on South Korea and USA based buyers given the regulatory hurdles.

Potential buyers who previously expressed interest have started to look into the company again. In the pool of potential buyers are South Korean industry players such as Samsung Electronics, SK Hynix and LX Group, as well as large private equity firms.

MagnaChip, which consists of display and power businesses after offloading its foundry services in 2020, is said to have not ruled out selling the company in parts. The company is estimated to be worth more than 1 trillion won ($837 million) as a whole.
Source: TheBell

We continue to view the special situation in MagnaChip shares as an attractive opportunity, especially during periods of market weakness.