Korea’s LX Group seeks to acquire Magnachip Semiconductor

South Korea’s LX Group is looking to acquire US-listed Magnachip Semiconductor Corp. to create synergy with the group’s foundry affiliate, people familiar with the matter said on Tuesday.

LX Group, a split-off from Korea’s fourth-largest conglomerate LG Group, will make its interest in Magnachip official by submitting a letter of intent (LOI) as early as next week, according to investment banking industry sources.

With the acquisition, LX hopes to achieve economies of scale in the chip design and manufacture business by combining Magnachip with LX Semicon Co., the sources said.

LX Semicon, which largely supplies its products, including display driver ICs (DDICs), to LG Group, can benefit from Magnachip’s DDIC-related patents and manufacturing facilities, they said.

LX Semicon, formerly Silicon Works Co., is striving to diversify its business portfolio into the production of automotive chips, which are in growing demand from electric vehicle makers.

Headquartered in Korea, Magnachip is the world’s second-largest DDIC chipmaker with a 30% market share following industry leader Samsung Electronics Co.

The company posted $474 million in revenue with its earnings before interest, taxes, depreciation and amortization (EBITDA) of $64.1 million last year.

Specializing in system chips, Magnachip is also preparing to enter the silicon carbide (SiC)-based automotive power chip market in the second half of this year.

ABORTED DEAL

The company’s shares are traded on the New York Stock Exchange. Its market capitalization stood at 843.3 billion won as of Tuesday. Magnachip’s entire stake, including the management rights premium, could reach as high as 1 trillion won, the sources said.

Magnachip was set to be sold to Chinese private equity firm Wise Road Capital for $1.4 billion last December, but the deal went awry after the US government, amid a trade dispute with China, blocked it, saying that the deal posed a “risk to national security.”

Since then, Magnachip has been looking for other buyers, mostly Korean.

SK Hynix Inc., Kolon Group and KCC Corp. earlier considered acquiring the system chipmaker, but have dropped their interest, industry watchers said. Wonik Corp., a small Korean semiconductor company, is also said to be interested in Magnachip, they said.

SK Hynix, the world’s second-largest memory chipmaker, last October took over Key Foundry, a spin-off of Magnachip’s foundry business, for 576 billion won.

LX Group’s bid for Magnachip will be led by LX Semicon and forming a consortium with private equity firms is also a strong possibility to raise its chance of winning the bid, sources said.

CHAIRMAN KOO’S RETAKE OF CHIP BUSINESS

For LX Group, the purchase of Magnachip, if successful, would mean retaking the ownership of a major chip company previously sold to its rival conglomerate Hyundai in a deal engineered by the government.

Magnachip originated from LG Semiconductor, which was launched in 1979.

In 1999, however, LG Semiconductor was sold to Hyundai Group and merged into Hyundai Semiconductor as the government worked out a “Big Deal” among conglomerates allowing local companies to better compete with foreign rivals in key sectors.

LX Group Chairman Koo Bon-joon was the chief executive of LG Semiconductor at the time.

Hyundai Semiconductor was later renamed Hyundai Hynix, and then SK Hynix after SK Group acquired the chipmaker.

LX Semicon last year posted record sales of 1.9 trillion won with its operating profit rising threefold to 369.6 billion from the previous year amid a global chip shortage.

In late 2020, LG Group split off its non-core units and placed them under another holding firm, LX Holdings Corp., which owns affiliates such as LX Hausys Ltd. and LX MMA Corp.

LX Chairman Koo, who is the uncle of LG Group Chairman Koo Kwang-mo, ran LG Electronics Inc. for six years from 2010 and was vice chairman of LG Corp. for three years after that. He is a grandson of LG Group founder Koo In-hwoi and the third son of Koo Ja-kyung, the late honorary chairman.

LX Group has been active in the M&A market since its inauguration.

Last December, the group acquired a 100% stake in Hankuk Glass Industries Inc. (HanGlas) for about 600 billion won through the group’s core affiliate LX International Corp.

Write to Jun-ho Cha at chacha@hankyung.com
In-Soo Nam edited this article.