Magnachip purchased 1 million shares of Magnachip owned by J.P. Morgan. The amount is about 37.5 million dollars (approximately KRW 45 billion), which is about half of the penalty that Magnachip receives from Wise Road Capital, a private equity fund.
Magnachip recently signed a 37.5 million dollar stock accelerated share repurchase (ASR) agreement with J.P. Morgan. Under this contract, Magnachip will make a cash payment to J.P. Morgan and receive approximately 1 million common shares held by JP Morgan. Additional purchases are possible. Magnachip's board of directors has approved the redemption of up to 75 million dollar of common stock from J.P. Morgan.
Magnachip's share buyback appears to be to cover loan costs from the existing J.P. Morgan. In the past, Magnachip had received financing from banks including J.P. Morgan through a leveraged buyout (LBO) method. LBO is a borrowing method that uses corporate assets as collateral for the loan.
Magnachip received 72 million dollar (approximately KRW 86 billion) as a penalty after Wise Road Capital gave up on their acquisition of the company. It is interpreted that the stocks held by J.P. Morgan were purchased for the purpose of increasing shareholder value as they had sufficient funds.
It is also gaining interest on how Magnachip will use spare funds from the penalty in the future. There is also the possibility of additional treasury stock repurchases or R&D and facility investment.
Young-joon Kim, CEO of Magnachip, said, "(The share buyback) reflects the confidence of our management and board of directors in Magnachip's financial health, long-term growth strategy and ability to generate sustainable cash flow. It is consistent with our commitment to enhancing and returning shareholder value,” and he added, “Our business has healthy long-term fundamentals and we are ready to accelerate Magnachip’s third growth strategy (MX 3.0).”
By Staff Reporter Dong-jun Kwon (djkwon@etnews.com)