It's OT, but there's lotsa smart semiconductor people here..... curious on anyone's thoughts.
(Sigh....I thought I was done posting about SIMO).
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Ok, someone explain to me why this outcome is incorrect?
Background - MXL agree to acquire SIMO a year ago for $3 billion cash and $500m MXL stock. Since then the semiconductor industry has collapsed, so the cash purchase price is way too high today. But there is a contract. The obstacle to closing had been Chinese approval. If there is no approval by Aug 7th 2023, then the deal is kaput and MXL is supposed to pay SIMO a $160m "break up fee". Unexpectedly China approved the deal earlier this week. SIMO's stock price rocketed from $52 to $95, got halted, MXL said SIMO is in violation of some aspects of the deal, so they are canceling their plan to buy without penalty. SIMO said there is no violation, and they plan to vigorously make effort to compel MXL to complete the agreement.
With that as background......why is the following wrong?
1.SIMO goes to arbitration with MXL to compel them to complete the deal based on the terms in the contract. In other words, force them to buy SIMO for $93.32 cash + 0.388 shares of MXL per SIMO share.
2.SIMO wins.
3.MXL cannot get the financing ($3 billion) and cannot come up with the cash portion of the deal.
4.SIMO sues MXL for damages as the failure to execute the contract harms SIMO shareholders significantly, perhaps as much as $2 billion. I think the harm to SIMO is at least $3.5 billion (the total deal price) minus SIMO's market cap next week without a chance of a deal (unknown, but perhaps $1.5 billion?).
5. SIMO wins the lawsuit, MXL owes SIMO $1b - $2 billion, whatever is determined to be the damages for not completing the $3.5b deal.
6. MXL goes bankrupt, and SIMO and other MXL creditors own MXL.
I'm sure SIMO and MXL are right now negotiating over resolutions to their situation, but SIMO seems to hold the powerful hand, and I sort of expect SIMO to come out of this owning MXL. MXL needs SIMO to agree to NOT drive them into bankruptcy, which puts MXL at the mercy of SIMO.
I wonder if MXL is a good short?
MXL equity is not zero, so there's something wrong with my thought process above, but I don't know where the error is. I really doubt MXL is going to be able to prove SIMO violated the deal agreement and everything is legally off without penalty.
And don't say the maximum penalty is the $160m break up fee. There are certain things that trigger the break up fee, mainly related to not achieving regulatory hurdles before Aug 7th. I think the SAMR announcement means they achieved everything. Will Stein tells me MXL withdrew the US anti-trust application before it was approved, so they stopped that one dead in the water. When one of the parties causes anything in the deal to stop, the Aug 7th deadline goes out the window and arbitration is available to force the party to proceed with the deal. And when one of the parties breaks the deal, arbitration becomes available to force the $160m fee or force the deal to proceed, but not both. SIMO's press release says they're going to force the deal to proceed, and so.....what is MXL doesn't have access to $3 billion cash?
I think if SIMO wins in arbitration, they likely own MXL.
If MXL knows that, I can see an agreed revised settlement where MXL sells itself to SIMO for .... $1?
MXL seems hosed. I'm wondering if it's a good short? Why does it have any equity value at all? |
