Another Activist Enters The MagnaChip Semiconductor Corporation (MX) Fray

We’ll start out by providing a short summary on why the shares of MagnaChip suffered a massive slump at the beginning of February. Between February 1, 2012 and February 12, 2015 MagnaChip allegedly failed to disclose the fact that the company was wrongly recognizing its revenues, which inflated its prior financial statements in 2011, 2012, and the first nine months of 2013. Therefore, the shares of MagnaChip traded at a supposedly inflated price over this period of time. However, on February 12 MagnaChip revealed its restated financial results for fiscal years 2011 and 2012, and for the first three quarters of 2013 through its Annual Report on Form 10-K with the SEC. As a result, the stock price plummeted from $15 per share to as low as $4.89 per share in a very short period of time. Nevertheless, the activist hedge fund Pleasant Lake Partners, managed by Jonathan Lennon, believes that MagnaChip is significantly undervalued relative to its normalized earnings power and asset value. Pleasant Lake Partners has sent a letter to MagnaChip asking for actions and necessary steps to maximize shareholder value (read more details), and it seems that MagnaChip has finally taken some steps to put the company back on track.

On July 9, after reviewing its governance structure and discussing with shareholders, MagnaChip determined to take necessary actions to eliminate the classified board effective by the 2016 annual meeting. The company’s three-class board structure has been previously elected for staggered three-year terms. However, all directors of the company will stand for election annually, for one-year terms starting from next year. This announcement likely came as a result of Pleasant Lake Partners’ call for major changes in its open letter, which may have also prompted Engaged Capital’s entry into the stock. In addition to that, MagnaChip has recently disclosed that its board formed a strategic review committee that is set to review, consider, and evaluate strategic alternatives for the company, including the sale of the entire company or a substantial part of it. Considering the ongoing M&A wave of activity among chipmakers, it is highly probable that the share price of MagnaChip will spike as soon as discussions on a potential deal reach the public’s ears. Within our database, Marc Lasry’s Avenue Capital represents the largest shareholder in MagnaChip Semiconductor Corporation (NYSE:MX) as of March 31, with 4.09 million shares.

Disclosure: None