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Silicon Motion Technology Corporation (SIMO)

NasdaqGS - NasdaqGS Real Time Price. Currency in USD
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80.43+0.36 (+0.45%)
At close: 04:00PM EDT
79.82 -0.61 (-0.76%)
After hours: 04:04PM EDT
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  • B
    BillH
    Below is a cut-and-paste from the MXL presentation today.

    Update on Acquisition of Silicon Motion
    ▪ Acquisition is progressing well with projected close by mid-2023
    ▪ Announced that the waiting period under the Hart-Scott-Rodino
    Antitrust Improvements Act of 1976 expired on June 27, 2022
    ▪ Filed with China's State Administration for Market Regulation (SAMR)
    on July 6
    ▪ Registration statement on Form S-4 declared effective by SEC on July 13
    ▪ Debt financing is secured, subject to customary closing conditions, with
    focus on optimizing structure
  • B
    BillH
    The special meeting to vote for the merger is now set for August 31, 2022. All shareholders are urged to vote. The terms of the agreement setforth in the vote documents, and as earlier stated, are $93.54/ADS plus .388 shares of MXL for each ADS owned by shareholders of SIMO. Based on these terms, and asssuming yesterday's closing price of MXL of $38.92, the compensation to shareholder of SIMO totals $108.64 for each ADS of Silicon Motion owned. The closing price of SIMO yesterday of $86.44/ADS respresents a $22.20/ADS or 25% discount to the merger price. While the special meeting is on August 31st, I did not see a date upon which they plan to close this deal but, I sort of skimmed the documents, perhaps it's there somewhere. Someone else on this board may have some knowledge regarding the timing of merger after one of these votes are held. I'm not sure. But, I thought this was to be a 2023 closing. Maybe MXL will provide more information on their conference call.
  • P
    Powerpc_marker2
    China is impossible to block this small -scale merge. Big mergers AMD-XLINX and IIVI/COHR got approved by China. Be patient and hold tight!
    Bullish
  • P
    Powerpc_marker2
    It is ridiculous that SIMO is down while MXL is up. Be patient!
  • T
    The Truth
    I don't think there is any revenue miss. It is merely a timing issue. Take a look at the balance sheet - inventory is up about $100MM vs. Q2/21, and $50MM over Q1/22. That means that they are getting ready to delivery sizable revenue growth in Q3, and their major projects are not impacted, because if they are, they would have reduced orders from TSMC and keep flat inventory.
  • B
    BillH
    Dividend confirmed! As one of those people who has become used to my dividend income, this makes me very happy!
  • m
    mayslakeman
    Well, MXL up 4% today, SIMO down over 3%. And SIMO down more than any stock I follow, over 70. Most stocks are up, big up day. Guess a lot of hedging going on.
  • G
    Geezer31
    If there is other buying interest in SIMO, I would expect it to appear with public announcements between July 27 Q2 earnings release, and Aug 31st shareholder vote on the MXL deal. Hopefully August is interesting for SIMO!
  • m
    mayslakeman
    Well, a revenue miss, a non-gaap eps beat, and no guidance. Likely the rev whisper was somewhat lower than the published estimates. Slightly above the low end rev estimate (revs were 252.4, lowest estimate per Yahoo is 251 million. Give that analyst a cee-gar).
  • B
    BillH
    The employees including senior management have been paid for years (in addition to their regular salaries) in stock-based compensation. Assuming many still hold large positions, ceasing the dividend would hurt them especially if they have become somewhat dependant on (or at least used to) the additional income to support a certain lifestyle. And stopping a dividend for two or three quarters or more while they await to see IF the transaction will actually close would be somewhat cruel to their own people not to mention non-employee shareholders in my opinion.
  • B
    Bill
    I assume there will be no pre-announcement this week, and we will need to wait another 3-4 weeks for the full Q2 announcement. Does anyone here think they will cancel the dividend after the August payment? I think there is a risk that MXL pressures them to do that.
  • P
    Powerpc_marker2
    HOLD SIMO tight! Take over will go through! The merge with MXL will only need SIMO shareholders vote as well as China approval. I think that SIMO shareholders will vote yes. China will also approve the deal like IIVI-COHR and AMD-XlNX.
    Bullish
  • m
    mayslakeman
    It hasn't closed below $80 since the deal was announced May 5. It was $79.53 intraday once but closed above $80. And now at $79.53, barely higher than when the rumor first came out. Market tumbled since, but there's also been some recovery.

    Geopolitical situation is one thing weighing on chance of approval, but also the end markets in consumer devices weakened.

    At this point you have to imagine the shareholders will approve. Maybe that'll goose it a bit.
  • 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.
  • B
    BillH
    At the current share price of $80.12, and assuming the deal with MXL is consumated by say June 2023, you will earn 32% on your investment in one year. Not too shabby. But, the market seems to have its doubt to say the least.
    Bullish
  • 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.
  • m
    mayslakeman
    MXL beat and raise. Other parts of the semi space but TXN nice report yetserday, LRCX great results and guidance tonight. SIMO not great results but I think the SOXX will be up. Qcom meh. And a bit of relief rally when not-as-bad-as-expected results at MSFT and goog lead a rally. Poor KHC beats and raises and goes way down today. Source of funds fir spec rally in tech. You can always raise Heinz ketchup prices. :)
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