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Silicon Motion Technology Corporation (SIMO)

NasdaqGS - NasdaqGS Real Time Price. Currency in USD
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83.70-0.33 (-0.39%)
At close: 04:00PM EDT
83.70 0.00 (0.00%)
After hours: 04:32PM EDT
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  • T
    The Truth
    Seekingalpha's latest article and others listed 3 hurdles for deal completion, but they don't seem to understand the context correctly:

    Regulatory risk - it will be a non-event. China blocked ARM acquisition because it will put all Chinese designed application processors (or CPUs) under US scrutiny. SSN controller doesn't even register in China's priority list, and the latest pandemic induced economic collapse has forced China to take a softer touch - take a look at the audit issue.

    risk on SIMO's revenue - a potential downturn would not change why MXL wanted SIMO. The only risk is whether SIMO loses market share to competition and that risk is lower if a recession hits. Nand makers will stay further away from bringing controller internal because their focus will be on cost cutting and prioritizing capital on core technology.

    interest rate - MXL and many other small companies upped their credit lines before rate hike - do you know why? Because they can get the deals pass through bank credit committee easier. Why anyone thinks that MXL, GS, Wells and SIMO forgot to check interest rate projections? Everyone knows interest rates were going up - it's in the deal economics. The only thing we don't know is whether MXL took a swap position, and they probably didn't, so their rate in 2023 maybe up by 50bp they what they thought as base case 1 month ago, but is certainly below their high case.

    In the end, both banks and MXL will bench the deal against the cash flow, not anything else. This is why the deal is super solid because SIMO is a super clean cash flow generator. Analysts covering SIMO don't have the 5 minutes to write it up because their clients know. In fact, their silence is the best sign we have got. If they will write if they think SIMO is back into the market.

    Finally - I think retail investors are the ones selling and institutions are taking those shares away quietly.
  • g
    george
    Simo is a long way before being acquired. We will see $65 by late summer.
  • B
    BillH
    Regarding financing of this transaction, the MXL CFO Linchfield stated on a call they are expecting a $2.7 billion loan with an interest rate between 2.5-3.5%. This could be one reason the market may believe this deal is falling apart. It sould seem that interest rate may not materialize in this market. Here is his exact quote on the call:

    ".... So we do have debt financing committed. Clearly, we'll go to market in the term loan market, so we're looking at those markets right now. But I think in the, you know, 2.5 to 3.5. So if we're plus [Ph] 2.5 to 3.5 is probably the range we're thinking about."
  • j
    jeff
    Good article June 14

    https://seekingalpha.com/article/4518266-making-sense-of-maxlinears-bid-for-silicon-motion?utm_source=simplywall.st&utm_medium=referral

    “However, the deal could take some time to materialize given the number of jurisdictions it has to go through for regulatory approval, especially in China where SIMO is a leading supplier of SSD controllers for TLC flash. This is a technology that is seen as crucial in replacing mechanical hard disk drives in favor of TLC SSD which offers relatively higher performance and competitive advantage over traditional storage.
    Therefore, there are some regulatory risks in case there is an aggravation of the geopolitical environment between the U.S and China over Taiwan. These risks may explain why, at $91, SIMO's stock remains far from the $114.34 offered as part of the $93.54 in cash plus 0.388 shares of MaxLinear common stock.”
    “As for MaxLinear, it had only $170 million of cash and equivalents as per its last reported quarter and thus, it will have to fund the $3.1 billion cash part of the acquisition with debt financing. For this purpose, the company had $325 million of debt on its balance sheet at the end of March and a low long-term debt to total capital ratio of 37%.”
  • G
    Geezer31
    I wonder if the interest rate goes higher and higher at what point might MXL cancel the deal and just pay the break up fee? I think when they made plans to purchase SIMO using a $3 billion loan they weren't expecting interest rates to go through the roof.
  • B
    BillH
    Here's some language in MXL's SEC filing but, SIMO would still get a fee:

    The Merger Agreement further provides that if the Merger Agreement is terminated for failure to obtain required antitrust approvals, MaxLinear may be required to pay Silicon Motion a termination fee of $160.0 million.
  • G
    Geezer31
    It's amazing that SIMO is still below the cash value of the MXL acquisition. SIMO shareholders also receive 0.388 shares of MXL (worth about $16) for each share of SIMO.
  • m
    mayslakeman
    The market doesn't seem to think this deal is happening. $9 under the cash portion alone. Then again everything is getting hammered and MXL down almost 9% today.
  • G
    Geezer31
    I wonder if MediaTek will decide to outbid MXL? I think it's pretty easy for an "all stock" deal between MediaTek and SIMO to be superior to MXL's cash and stock bid for tax reasons. I don't want cash, I want a tax free exchange of the buyer's stock for my SIMO holdings. If MXL's deal goes through I've gotta pay 23.8% capital gains tax on the transaction - that brings the after tax value of the sale down to the same level the SIMO was at when the deal was announced. Why would I want to do that? A stock free transaction is much preferable to a taxable cash sale.
  • p
    peendee
    There is a presentation from $mxl CEO on their website that devotes considerable time to elaborating on the $simo merger. Worth a listen.
    The boss also lays out a plan for strong revenue growth as a stand alone company.
    Might want to participate in the newly combined company assuming deal gets completed.
  • T
    The Gauntlet
    Silver lining... with this market, we'd probably be trading in the mid-$60's without the deal.
  • G
    Geezer31
    Ok, here's my guess of how things transpired. Last year in Q4 MediaTek approached SIMO with interest to acquire them. At the time SIMO was around $65, so perhaps MediaTek wanted to buy them on the cheap. SIMO didn't want to sell cheap, and they wanted to make themselves less appealing to any buyers, so they announced the $200m share repurchase which was supposed to be completed within six months. This would both reduce the cash on the balance sheet (making it harder for the buyer to use SIMO's cash to pay for SIMO), reduce the share count, and also give out the hint that SIMO is in play. Remember how just the news of the share repurchase pushed SIMO's price up above $90? Maybe the MediaTek interest leaked? And then Goldman Sachs went looking for alternative buyers who might pay more, and GS found MaxLinear. SIMO has probably been in discussions with Maxlinear since Feb? Why do I say that? Well, for one thing SIMO didn't purchase any more of it's shares since the Q4 earnings call in late January - that's why they left $50m on the $200m authorized share repurchase. Once serious acquisition discussions began, it's probably not kosher for SIMO to be buying it's own stock. SIMO then played MediaTek and MXL against each other, and MXL has come out the winner with the so far highest bid. But......we've got about 9 months until I expect the deal to close, and depending on SIMO's actual results to be reported in Q2 adn Q3 this year, MediaTek may or may not return to the table with a higher bid. That's my guess, to learn the truth we will have to wait for the Netflix series - "The Little Flash Controller Company that Rocked the World!!"
  • G
    Geezer31
    Is there any reason a bidding war would break out about now rather than in November? In November, we will have seen SIMO's Q2 and Q3 results, and the temptation to bid (or not) may be changed depending on what those results are. As a reminder SIMO's previous forecast provided in mid-Feb 2022 was that in 2022 sales will grow 20% to 30% over 2021, and if TSMC gives SIMO more foundry allocation, the 2022 sales will be higher than that forecast. So.......in Q1 2022 did TSMC give SIMO additional foundry allocation, allowing them to increase (as promised) their forecast for 2022? Last year in 2021 TSMC gave SIMO more allocation in Q1, and SIMO raised 2021 full year guidance when they reported Q1. This year SIMO didn't give their standard "next quarter" and "full year" forecast, something they have given every quarter for many many years. Why not? And I want to know, in discussions with MXL and Goldman Sacks as the merger financial advisor, did SIMO give any "new" forecast information which is different from their Q1 guidance? As shareholders, we have the right to know. Legally, if they gave new forecast information to either group, they are required to share it with SIMO stockholders. That's THE LAW. I am waiting for a response.
  • i
    irazabul
    Did either company say how long it would take to close? I imagine MXL would have to file HSR in the US. Not sure if any other regulatory bodies have jurisdiction also. The fact that this is trading well below the total purchase price indicates to me that the market is placing a good amount of risk that this deal may not close.
  • T
    The Truth
    I knew it - this is why Wallace sold SIMO cheaply - as I said initially, the deal looked like a merger instead of a buyout. Now Wallace confirms it - he can cash in and keep running the show and that is why is sold it for cheap. We WANT to know what has been promised to the SIMO executive!!!!!

    Silicon Motion to operate independently after merger with MaxLinear
    Siu Han, Taipei; Willis Ke, DIGITIMES
    Monday 16 May 2022
    0

    Silicon Motion president Wallace Kou. Credit: DIGITIMES

    Silicon Motion Technology will not change its trade mark or operating strategy after being acquired by US-based broadband communication chips supplier MaxLinear, as both companies will operate independently after the deal is completed, according to...
  • P
    Powerpc_marker2
    Street sees potential for 'bidding war' to break out for this chipmaker
    Market Mover
    Jessica de Sa-Mota - email
    Following the deal news, some analysts are downgrading the stock, but others are holding out that a higher bid could be coming
    Shares of this chipmaker are in the spotlight on Thursday after the company announced that it had entered into a definitive agreement to be acquired in a cash and stock transaction that values the combined company at $8B. Saying the announcement is "not much of a surprise," Roth Capital analyst Anthony Stoss told investors he believes Silicon Motion (SIMO) is an attractive target for "several suitors" and that the news "could potentially ignite a bidding war." Also commenting on the deal, his peer at Wedbush told investors that he sees an "attractive opportunity" in Silicon Motion given a significant discount between its valuation and the proposed transaction price, and some potential for another bidder.

    MAXLINEAR DEAL: MaxLinear (MXL) and Silicon Motion announced that they have entered into a definitive agreement under which MaxLinear will acquire Silicon Motion in a cash and stock transaction that values the combined company at $8B in enterprise value. In the merger, each American Depositary Share, or ADS, of Silicon Motion, which represents four ordinary shares of Silicon Motion, will receive $93.54 in cash and 0.388 shares of MaxLinear common stock, for total per ADS consideration of $114.34. Combined revenues are expected to be more than $2B annually and are supported by the technology breadth to address a total market opportunity of roughly $15B. The transaction is expected to generate annual run-rate synergies of at least $100M to be realized within 18 months after the transaction closes and is expected to be immediately and materially accretive to MaxLinear's non-GAAP earnings per share and cash flow.

    Silicon Motion also reported first quarter non-GAAP earnings per share of $1.72 and revenue of $241.98M, with consensus at $1.53 and $235.92M, respectively.

    MOVING TO THE SIDELINES: Roth Capital analyst Suji Desilva downgraded Silicon Motion to Neutral from Buy with a price target of $110, down from $120, following the announcement of its planned acquisition by MaxLinear. Desilva expects MaxLinear to benefit by incorporating Silicon Motion's infrastructure storage capability given the latter's solid storage controller and interconnect capability. Needham analyst Rajvindra Gill and Susquehanna analyst Mehdi Hosseini also downgraded Silicon Motion to Hold-equivalent ratings after the news.

    'BIDDING WAR': After MaxLinear announced the deal to acquire Silicon Motion in a cash and stock transaction valued at $114.34 per ADS, Craig-Hallum analyst Anthony Stoss said the announcement "is not much of a surprise" given that potential takeout rumors have recently been circulated. He views Silicon Motion as an attractive target for "several suitors" and believes the announcement "could potentially ignite a bidding war" that "could ultimately drive the takeout price closer to $120 plus." Breakup fees are not overly aggressive either, which could make follow-on bids from other interested parties a higher likelihood, he contended. Stoss reiterated a Buy rating and $120 price target on Silicon Motion shares given what he sees as the potential for a higher bid.

    Meanwhile, Wedbush analyst Matthew Bryson said that while a deal to be acquired by MaxLinear has been announced, he sees an "attractive opportunity" in Silicon Motion given a significant discount between its valuation, and the proposed transaction price and some potential for another bidder as still creating attractive upside potential for the stock. The analyst likes Silicon Motion and believes the purchase price was fair, but struggles with some of the synergy goals and opportunities laid out by MaxLinear management. Bryson believes the deal has minimal regulatory risk and continues to see positive momentum for Silicon Motion. He has an Outperform rating and a price target of $115 on Silicon's shares.
  • h
    hungryman
    It's almost like investors value the MXL shares at zero. 😀
  • G
    Geezer31
    My main question for MXL as buyer and Goldman Sachs as financial advisor to the transactions is "Did SIMO management provide any forecasts which helped you in creating the transaction? If so, what were the forecasts?" We SIMO shareholders have a legal right to know the answer.
  • j
    jeff
    The hold premium has actually increased every day for the past 8 trading days. There are no signs that I know of that the deal will not go through. I just don't get it.
  • i
    irazabul
    I've said this before and say so again - SIMO managment is great at operations and the running the business, but terrible at optimizing shareholder value. Honestly, this sale process has been amateur hour. Nothing about it seems normal or competitive. I'm shocked that GS was the advisor on this - my guess is that they were just paid to give a fairness opinion and go away. There are so many things wrong with how they went about this. I have a fair number of shares and will be voting against this sale unless as many have said, we get transparency into what and why. This should all come out with SEC filings but it should not have come to that. SIMO is basically alienating its shareholders at this point, as evidenced by this board. Never thought I'd be upset when a stock I own gets acquired - usually a great thing but not in this case.