We’ve looked at a few “takeover target” pitches from Dylan Jovine in recent years — about a year ago the pitch was for Iovance Biotherapeutics (IOVA), and that didn’t go anywhere (the stock is now down about 50%), and before that the inaugural teaser pick from this service was Denali Therapeutics (DNLI) in early 2020, which did very well if you timed it right and sold anywhere in 2021.

So what’s this next one, you ask? We’ll sift through the clues from the “#1 Takeover Target for June” pitch and get you some answers. The ad is for Dylan Jovine’s Takeover Targets ($997/yr, 30-day refund period), and this is how it gets us interested:

“I’m going to take you behind the scenes and introduce you to a company we believe could be taken over any day.

“That’s because they’ve invented a new semiconductor that helps extend the battery life of electric vehicles (EV’s).

“But not just EV’s. Their semiconductors are now being used to extend the battery life of smartphones, laptops, servers, computers, data centers and more.

“The underlying technology is so advanced that…

“This Micro-Cap Already Got 2 Takeover Offers”

Apparently those previous takeover offers were blocked for national security reasons, so which chip stock might this be?

Apparently it does something in the realm of power electronics…

“In 2015, this tiny firm won a patent on a manufacturing method that extends battery life on all sorts of devices.

“The patent was so powerful, they even won a national science award for it….

“By winning this patent, this company has the ability to put its semiconductors in tens of millions of products each year….

“That’s what we call a platform technology.

“Instead of inventing one semiconductor for one use, they’ve invented a manufacturing process that can work in all sorts of devices…

“The fact that this breakthrough is proving to be so effective is why this is such a game-changer.”

And apparently the takeover offers this company received back in 2021 were at prices 52% above today’s price and 94% above today’s price. Which I guess shouldn’t be surprising, many stocks are still well below where they were back in 2021, especially if they don’t have a hot “AI” connection to get people excited.

Here’s how Jovine sums up the “ingredients” for a good takeover speculation (OK, the word “speculation” is mine):

“Ingredient #1 – A Large Gap Between the value of the company and what the common stock is actually selling for.

“Remember what we said: this company already got two offers.

“A takeover at last years price would hand investors a profit of 94% (or more) based on how we recommend playing it.

“But business is booming at this company, so we’ll probably see a deal at a much higher price, which would hand you a 300% return.

“Chances are it’s somewhere in the middle….

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“Ingredient #2: A Board of Directors Open to a Legitimate Offer

“This management team already got two offers last year and accepted one of them.

“That means they’re open in principle to a good deal.

“… ingredient #3: potential buyers.

“With two takeover offers already on the table, finding buyers will not be a problem for this company.
So even if a deal doesn’t happen, the company’s product pipeline will likely cause this company’s value to soar over the next 3 years…

“This path could conservatively hand early investors like you 300% (or more) on your money.
It’ll just take longer.”

So what’s the stock? Thinkolator sez this is MagnaChip Semiconductor (MX), which did indeed get two takeover offers back in 2021 — the first from Wise Road Capital, for about $1.4 billion (~$29/share), and the second from Cornucopia Investment Partners, a UK buyout firm, for $1.66 billion ($35/share). Wise Road is a Chinese firm, and the deal was blocked for national security reasons by the US, even though it’s a South Korean company (formally headquartered in Luxembourg, presumably for tax reasons)… and the Cornucopia offer never seemed to make it to formal negotiations, I haven’t dug through the conference calls or filings to learn why (there were no press releases about the deal after the initial offer).

Though frankly, this seems like a retread of a teaser pitch — I wouldn’t be surprised if Takeover Targets made this recommendation last year, and it’s just being trotted back out to troll for new subscribers. Those numbers that Jovine references, like “52% above today’s price” and “94% above” for the two offers, would have applied last summer, when the stock was in the mid-teens, as would the “got two takeover targets last year“… but the stock is a lot lower now, it’s down to about $11, so if MX got a takeover offer today at anywhere near the prices Wise Road and Cornucopia were offering in 2021, that would be a gain of anywhere from 150% to 220%.

Who knows, maybe it was the Takeover Target newsletter’s recommendation for June of 2022, and they’re just using it as their easiest recycled teaser pitch of all, don’t even have to change the wording to make it the “Takeover Target for June” this year.

We also got this clue:

“last month, it was reported that this firm got a takeover offer from an American firm.”

That further cements my suspicion that this is a rerun of a 2022 recommendation. I haven’t seen a recent rumor or news item about MagnaChip getting another takeover offer… though in the Spring and Summer of 2022, it was widely rumored that LX Holdings was considering making an offer for the company — LX Holdings is a South Korean company, which might make the deal easier to approve, but the American connection was funding from the Carlyle Group. That was the chatter for much of last Summer, but as of September of 2022 the reports were that LX had “put their pencils down” and moved on to other targets, citing the risk of a possible MX deal.

So we haven’t seen any recent takeover chatter for MagnaChip, though the company is still looking for ways to make themselves more valuable… most recently, under some pressure from activist investors, they’ve internally “split” the company so that they can report their Display and Power businesses separately, which might make it easier to spin off or sell part of the company in the future (they’ll be two separate companies, though both will continue to be wholly owned by MagnaChip and it won’t have a financial impact).

MagnaChip is currently in a down year, after the 2021 boom in revenue and earnings, but the few analysts who follow the company do think that they’ll begin to grow again late this year, and that they’ll be profitable next year (the estimate is for 36 cents in earnings per share in 2024). That would put the forward PE at about 30.

That’s a big comedown for both earnings and revenue if you look back a few years. They earned $1.09 per share on $474 million in revenue in 2021, and that fell to $337 million last year but may now bounce back to $394 million next year. If you look back a bit further, though, this looks like one of the small semiconductor companies we run across every now and then that has never been able to return to its glory days — their best year for revenue was 2012, and they often had sales of $600-800 million in years past, but they’ve rarely had sustained periods of revenue growth, and for the most part it’s been a gradual decline to the current $300-400 million range. They have managed their expenses reasonably well, so over the past dozen years they’ve recorded a profit about half the time, but the failure to grow in any steady way makes it hard to attract investors.

Is their power electronics technology especially valuable for electric vehicles? Maybe, but power electronics is also an extremely competitive area of semiconductors, and I certainly can’t make the call that they’re particularly better than others for technical reasons. Perhaps those takeover bids in 2021 and 2022 were indications that there’s some glorious value hidden inside the company, but I am not smart enough to see it by myself — I have to judge by their revenue and margins, and from the outside, those numbers make it look like they’re in a competitive and cyclical business and are struggling to hold on to their market share, let alone grow it.

That’s just my take, though. When it comes to your money, you get to make the call — think this will be a takeover target again? See glory days ahead for a somewhat unknown old South Korean chipmaker? Am I missing the technical brilliance of their designs or patents? Do let us know with a comment below.