There is minimal overlap between MXL and SIMO.
I think the deal reasoning for MXL is just a "grow by acquisition" strategy. They bought Intel's wifi business a few years ago, and it turned around and became fantastic for MXL. They they probably think they are great acquisition integrators and this is supposed to be the next one for them.
MXL does have a product in enterprise storage called an accelerator. SIMO is entering enterprise storage flash controller about now (they've been working on this new product for three years, it was supposed to go into pilot testing in H2 2022 and mass production in H2 2023. Haven't had much news about it's success or failure since May 2022 due to the merger silence. But these two products could have some synnergy in making a more complete enterprise storage system. That would be at least a few YEARS down the road.
But other than that NEW product, no synnergies.
SIMO buys a lot more wafers from TSMC than MXL, so MXL says they should be able to negotiate better prices out of TSMC for their legacy MXL wafers due to the combined company's higher volumes.
As for the premium, it didn't look that crazy when the deal was announced. SIMO had traded at $90 5 months earlier, and the deal price was about $105 (SIMO was about $70 if I recall when the deal was announced).
However, SIMO's Q2 2022 sales were $250m, MXL about the same, and now SIMO's Q2 2023 sales are $140m (and expected to rise) and MXL $170m (and expected to decline). So the issue is the collapse of the market makes the deal price outrageous. And lucky for SIMO, the deal is mostly cash and not reduced price MXL stock.
I'm no lawyer, but I think SIMO sues MXL to make them execute the contract, and wins, and then if MXL can't come up with $3 billion cash to buy SIMO MXL likely goes bankrupt and SIMO owns most of them.
There are conditions where the break up fee is triggered, but they mainly relate to NOT receiving regulatory approvals by Aug 7th. There is no method whereby MXL can just quit the deal and pay the $160m. If SIMO violated the terms of the deal or experienced what is called a Material Advese Effect then the deal is off, and MXL is going to try to prove in arbitration that that happened. But I doubt it did.
A Material Adverse Effect is like war destroys half the workforce or the patents are determined to be invalid. Sales going down in a cyclical industry is generally NOT a material adverse effect. So we gotta wait to arbitration I think to see what MXL's argument is for quitting the deal without penalty, but my money is on SIMO to win, and MXL to have to figure out how to come up with the cash.
Maybe Intel (or some large company) will buy MXL and SIMO together (??), cuz buying MXL gets you SIMO. But they'd likely pay zero for MXL stock as someone needs to come up with $3 billion for SIMO's cash takeover. If MXL can't come up with the money, I'm not sure what happens, but it can't be good for MXL's equity.
MXL's share price (it still has value) is telling me my thinking is incorrect. But lets see.... |
