Magnachip could get 80 billion won from Wise Road if deal fails

China’s Wise Road Capital will have to pay Magnachip a penalty fee if it fails to follow its plan to buy the chip company, TheElec has learned.

The Chinese firm had agreed to pay around 80 billion won in penalty to the South Korean chipmaker in their acquisition contract if its plan to buy them doesn’t pull through, sources said.

The contractual deadline for the acquisition deal is sometime at this year’s end or early next year, they said.

Wise Road Capital in March agreed to acquire the system chip maker based in South Korea for US$1.4 billion. The price had a 75% premium on the three-month average share price at the time.

Back in August, the US Treasury Department had said that the acquisition of Magnachip by the Chinese private equity firm posed "risks to national security", according to Reuters.

Magnachip had filed a reevaluation request. The result will come out on the 28th of this month, but it seems highly unlikely that the US government will change its stance.

The deal also requires the approval of authorities in South Korea. The country’s Ministry of Trade, Industry and Energy in June newly designated OLED display driver IC technology as a national core technology. Magnachip mainly manufactures OLED driver ICs.

This means the deal will require the approval of the Trade minister.

Magnachip recorded US$32.6 million in operating income last year, and the penalty fee it may receive from Wise Road is double that, a source said.

There is a shortage of OLED display driver IC which could increase their price more, which isn’t bad for Magnachip as well, they said. However, the company will need to secure foundry capacity to increase production volume, they added.