Case 1:21-cv-03587 Document 1 Filed 04/22/21 Page 1 of 29
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`Evan J. Smith
`BRODSKY SMITH
`240 Mineola Boulevard
`First Floor
`Mineola, NY 11501
`Telephone:
`516.741.4977
`Facsimile:
`516.741.0626
`esmith@brodskysmith.com
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`Attorneys for Plaintiff
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`UNITED STATES DISTRICT COURT
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`SOUTHERN DISTRICT OF NEW YORK
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`DREW SCHULTHESS,
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` Plaintiff,
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` vs.
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`MAGNACHIP SEMICONDUCTOR
`CORPORATION, YOUNG-JOON KIM,
`MELVIN KEATING, ILBOK LEE, CAMILLO
`MARTINO, GARY TANNER, NADER
`TAVAKOLI, and LIZ CHUNG.
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`Defendants.
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`Case No.:
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`COMPLAINT FOR:
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`(1) Breach of Fiduciary Duties
`(2) Aiding and Abetting Breach of Fiduciary
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`Duties
`(3) Violation of § 14(a) of the Securities
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`Exchange Act of 1934
`(4) Violation of § 20(a) of the Securities
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`Exchange Act of 1934
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`DEMAND FOR JURY TRIAL
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`Plaintiff, Drew Schulthess (“Plaintiff”), by and through his attorneys, files this action against
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`the defendants, and alleges upon information and belief, except for those allegations that pertain to
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`him, which are alleged upon personal knowledge, as follows:
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`SUMMARY OF THE ACTION
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`1.
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`Plaintiff brings this stockholder action against MagnaChip Semiconductor Corporation
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`(“MagnaChip” or the “Company”), the Company’s Board of Directors (the “Board” or the “Individual
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`Defendants,”), and collectively with MagnaChip, the “Defendants”), for violations of Sections 14(a)
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`Case 1:21-cv-03587 Document 1 Filed 04/22/21 Page 2 of 29
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`and 20(a) of the Securities and Exchange Act of 1934 (the “Exchange Act”), and for breaches of
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`fiduciary duty as a result of the Individual Defendants’ efforts to sell the Company to South Dearborn
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`Limited (“Parent”), and Michigan Merger Sub, Inc. (“Merger Sub,” and collectively with Parent,
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`“Wise Road”) as a result of an unfair process for an unfair price and to enjoin an upcoming stockholder
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`vote on a proposed all cash transaction acquiring all of the Company’s remaining outstanding shares,
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`valued at approximately $1.4 billion (the “Proposed Transaction”).
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`2.
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`The terms of the Proposed Transaction were memorialized in a March 26, 2021 filing
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`with the Securities and Exchange Commission (“SEC”) on Form 8-K attaching the definitive
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`Agreement and Plan of Merger (the “Merger Agreement”). Under the terms of the Merger Agreement,
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`Parent, a company which is controlled by Wise Road Capital, will acquire all of the remaining
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`outstanding shares of MagnaChip’s common stock at a price of $29.00 per share in cash. As a result,
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`MagnaChip will become an indirect wholly-owned subsidiary of Wise Road.
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`3.
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`Thereafter, on April 19, 2021, MagnaChip filed a Preliminary Preliminary Proxy on
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`Schedule PREM14A (the “Preliminary Proxy”) with the SEC in support of the Proposed Transaction.
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`4.
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`The Proposed Transaction is unfair and undervalued for a number of reasons.
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`Significantly, the Preliminary Proxy describes an insufficient process in which the Board inefficiently
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`conducted the sales process of the Company, including selling of a portion of the Company prior to
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`entering into negotiations for a sale of the rest of the Company, and not creating a disinterested
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`committee of directors to run the sales process until it had already been going on for several months.
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`5.
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`In approving the Proposed Transaction, the Individual Defendants have breached their
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`fiduciary duties of loyalty, good faith, due care and disclosure by, inter alia, (i) agreeing to sell
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`MagnaChip without first taking steps to ensure that Plaintiff as a public stockholder of MagnaChip
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`would obtain adequate, fair and maximum consideration under the circumstances; and (ii) engineering
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`the Proposed Transaction to benefit themselves and/or Wise Road without regard for MagnaChip’s
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`COMPLAINT
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`Case 1:21-cv-03587 Document 1 Filed 04/22/21 Page 3 of 29
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`public stockholders, including Plaintiff. Accordingly, this action seeks to enjoin the Proposed
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`Transaction and compel the Individual Defendants to properly exercise their fiduciary duties to
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`Plaintiff.
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`6.
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`Next, it appears as though the Board has entered into the Proposed Transaction to
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`procure for itself and senior management of the Company significant and immediate benefits with no
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`thought to Plaintiff or the Company’s public stockholders. For instance, pursuant to the terms of the
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`Merger Agreement, upon the consummation of the Proposed Transaction, Company Board Members
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`and executive officers will be able to exchange all Company equity awards for the merger
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`consideration.
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`7.
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`In violation of the Exchange Act and in further violation of their fiduciary duties,
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`Defendants caused to be filed the materially deficient Preliminary Proxy on April 19, 2021 with the
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`SEC in an effort to solicit stockholders including Plaintiff to vote their MagnaChip shares in favor of
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`the Proposed Transaction. The Preliminary Proxy is materially deficient, deprives Plaintiff of the
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`information needed to make an intelligent, informed and rational decision of whether to vote their
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`shares in favor of the Proposed Transaction, and is thus in breach of the Defendants’ fiduciary duties.
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`As detailed below, the Preliminary Proxy omits and/or misrepresents material information concerning,
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`among other things: (a) the sales process and in particular certain conflicts of interest for management;
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`(b) the financial projections for MagnaChip, provided by MagnaChip to the Company’s financial
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`advisor J.P. Morgan Securities LLC (“J.P. Morgan”); and (c) the data and inputs underlying the
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`financial valuation analyses, if any, that purport to support the fairness opinions created by J.P. Morgan
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`and provides to the Company and the Board
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`8.
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`Absent judicial intervention, the Proposed Transaction will be consummated, resulting
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`in irreparable injury to Plaintiff. This action seeks to enjoin the Proposed Transaction or, in the event
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`Case 1:21-cv-03587 Document 1 Filed 04/22/21 Page 4 of 29
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`the Proposed Transaction is consummated, to recover damages resulting from the breaches of fiduciary
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`duties by Defendants.
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`PARTIES
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`9.
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`Plaintiff is a citizen of New Hampshire and, at all times relevant hereto, has been a
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`MagnaChip stockholder.
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`10.
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`Defendant MagnaChip together with its subsidiaries, designs, manufactures, and sells
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`analog and mixed-signal semiconductor platform solutions for communications, Internet of Things,
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`consumer, industrial, and automotive applications. MagnaChip is incorporated in Delaware and has
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`its principal place of business at 1, Allée Scheffer, L-2520, Luxembourg, Grand Duchy
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`of Luxembourg. Shares of MagnaChip common stock are traded on the NYSE under the symbol
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`“MX.”
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`11.
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`Defendant Young-Joon Kim (“Kim”) has been a Director of the Company at all
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`relevant times. In addition, Kim serves as the Company’s Chief Executive Officer (“CEO”).
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`12.
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`Defendant Melvin Keating (“Keating") has been a director of the Company at all
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`relevant times.
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`13.
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`14.
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`Defendant Ilbok Lee ("Lee") has been a director of the Company at all relevant times.
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`Defendant Camillo Martino (“Martino”) has been a director of the Company at all
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`relevant times. In addition, Martino serves as the Non-Executive Chairman of the Company Board.
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`15.
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`Defendant Gary Tanner (“Tanner”) has been a director of the Company at all relevant
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`times.
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`16.
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`Defendant Nader Tavakoli (“Tavakoli”) has been a director of the Company at all
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`relevant times.
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`17.
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`Defendant Liz Chung (“Chung”) has been a director of the Company at all relevant
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`times.
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`18.
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`The defendants identified in paragraphs 11 through 17 are collectively referred to
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`herein as the “Director Defendants” or the “Individual Defendants.”
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`19. Non-Defendant Wise Road is a global private equity firm that invests in leading
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`technology companies. Wise Road is an exempted company incorporated in the Cayman Islands with
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`limited liability.
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`20. Non-Defendant Merger Sub is a wholly owned subsidiary of Wise Road created to
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`effect the Proposed Transaction.
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`JURISDICTION AND VENUE
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`21.
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`This Court has subject matter jurisdiction pursuant to Section 27 of the Exchange Act
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`(15 U.S.C. § 78aa) and 28 U.S.C. § 1331 (federal question jurisdiction) as Plaintiff alleges violations
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`of Sections 14(a) and Section 20(a) of the Exchange Act. This action is not a collusive one to confer
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`jurisdiction on a court of the United States, which it would not otherwise have.
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`22.
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`Personal jurisdiction exists over each defendant either because the defendant conducts
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`business in or maintains operations in this District, or is an individual who is either present in this
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`District for jurisdictional purposes or has sufficient minimum contacts with this District as to render
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`the exercise of jurisdiction over defendant by this Court permissible under traditional notions of fair
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`play and substantial justice.
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`23.
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`Venue is proper in this District pursuant to 28 U.S.C. § 1391, because each of the
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`Individual Defendants, as Company officers or directors, has extensive contacts within this District;
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`for example, the Company’s stock trades on the NYSE which is headquartered in this District.
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`Case 1:21-cv-03587 Document 1 Filed 04/22/21 Page 6 of 29
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`THE INDIVIDUAL DEFENDANTS’ FIDUCAIRY DUTIES
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`24.
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`By reason of the Individual Defendants’ positions with the Company as officers and/or
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`directors, said individuals are in a fiduciary relationship with MagnaChip and Plaintiff as a MagnaChip
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`stockholder and owe the Company and Plaintiff the duties of due care, loyalty, and good faith.
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`25.
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`By reason of the Individual Defendants’ positions with the Company as officers and/or
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`directors, said individuals are in a fiduciary relationship with MagnaChip and owe the Company and
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`Plaintiff in his capacity as a Company stockholder the duties of due care, loyalty, and good faith.
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`26.
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`Each of the Individual Defendants are required to act with due care, loyalty, good faith
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`and in the best interests of the Company and public stockholders of the Company such as Plaintiff. To
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`diligently comply with these duties, directors of a corporation must:
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`a.
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`act with the requisite diligence and due care that is reasonable under the
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`circumstances;
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`b.
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`act in the best interest of the company and its stockholders such as
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`Plaintiff;
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`c.
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`use reasonable means to obtain material information relating to a given
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`action or decision;
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`d.
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`refrain from acts involving conflicts of interest between the fulfillment
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`of their roles in the company and the fulfillment of any other roles or their
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`personal affairs;
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`e.
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`avoid competing against the company or exploiting any business
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`opportunities of the company for their own benefit, or the benefit of others; and
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`disclose to the Company all information and documents relating to the
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`company’s affairs that they received by virtue of their positions in the company.
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`Case 1:21-cv-03587 Document 1 Filed 04/22/21 Page 7 of 29
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`27.
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`In accordance with their duties of loyalty and good faith, the Individual
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`Defendants, as directors and/or officers of MagnaChip, are obligated to refrain from:
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`a.
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`participating in any transaction where the directors’ or officers’ loyalties
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`are divided;
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`b.
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`participating in any transaction where the directors or officers are
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`entitled to receive personal financial benefit not equally shared by the Company
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`or its public stockholders, including Plaintiff; and/or;
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`c.
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`unjustly enriching themselves at the expense or to the detriment of the
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`Company or its stockholders, including Plaintiff.
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`28.
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`Plaintiff alleges herein that the Individual Defendants, separately and together, in
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`connection with the Proposed Transaction, violated, and are violating, the fiduciary duties they owe
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`to MagnaChip and Plaintiff in his capacity as a public stockholder of MagnaChip, including their
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`duties of loyalty, good faith, and due care.
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`29.
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`As a result of the Individual Defendants’ divided loyalties, Plaintiff will not receive
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`adequate, fair or maximum value for their MagnaChip common stock in the Proposed Transaction.
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`SUBSTANTIVE ALLEGATIONS
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`Company Background
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`30. MagnaChip, is a designer and manufacturer of analog and mixed-signal semiconductor
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`platform solutions for communications, IoT, consumer, industrial and automotive applications. The
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`Company provides a broad range of standard products to customers worldwide. MagnaChip, with
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`more than 40 years of operating history, owns a portfolio of approximately 1,200 registered patents
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`and pending applications, and has extensive engineering, design and manufacturing process expertise.
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`31.
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`The Company offers display solutions, including source and gate drivers, and timing
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`controllers that cover a range of flat panel displays used in mobile communications, automotives,
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`entertainment devices, notebook PCs, monitors and liquid crystal displays, organic light emitting
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`diodes, and micro light emitting diode (LED) televisions. The Company also provides metal oxide
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`semiconductor field effect transistors, insulated-gate bipolar transistors, AC-DC converters, DC-DC
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`converters, LED drivers, switching regulators, linear regulators, and power management integrated
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`circuits for a range of devices comprising televisions, smartphones, mobile phones, wearable devices,
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`desktop PCs, notebooks, tablet PCs, and other consumer electronics, as well as for various industrial
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`applications consisting of power suppliers, e-bike, photovoltaic inverter, LED lighting, motor drive,
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`and home appliances. It serves consumer, computing, and industrial electronics original equipment
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`manufacturers; original design manufacturers; and electronics manufacturing services companies, as
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`well as subsystem designers. The Company sells its products through a direct sales force, as well as
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`through a network of agents and distributors worldwide. MagnaChip was incorporated in 2004 and is
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`based in Luxembourg City.
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`32.
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`The Company’s most recent financial performance press release before the
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`announcement of the Proposed Transaction indicated impressive financial results. For example, in the
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`February 17, 2021 Press Release announcing its 2020 Q4 and full year 2020 operational and financial
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`results, the Company highlighted fourth quarter revenues of $142.9 million, up 14.5% from the
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`previous quarter and up 15.9% from a year ago, and as well as full year Earnings per Share of $7.54.
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`33.
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`Defendant CEO Kim commented on the results in the Press Release, “‘Magnachip's Q4
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`results exceeded our expectations, capping off one of the most challenging years for any of us. Our
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`Q4 results demonstrated counter-seasonal strength with a 14.5% sequential revenue growth and GAAP
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`operating income margin of 6.4%, and Non-GAAP adjusted operating income margin of 10.7% driven
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`Case 1:21-cv-03587 Document 1 Filed 04/22/21 Page 9 of 29
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`by a strong ramp-up in 5G as well as effective cost management. 2020 was an exceptional year for
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`Magnachip, despite the challenges presented by the pandemic. We entered MX 3.0, the exciting new
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`chapter of growth, with a sharpened focus as a pure-play standard products company, renewed energy,
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`and a clear mission of empowering our customers. Under MX 3.0, we set long-term financial targets
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`that we would like to achieve by 2023. While we recognize the path will not always be a straight line,
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`the exciting opportunities ahead of us only reinforce our confidence in our growth outlook. I am proud
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`of and thankful for our amazing group of dedicated employees who continued to deliver extraordinary
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`results in 2020.’”
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`34.
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`Despite this successful year and positive outlook, the Individual Defendants have
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`caused MagnaChip to enter into the Proposed Transaction for insufficient consideration.
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`The Flawed Sales Process
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`35.
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`As detailed in the Preliminary Proxy, the process deployed by the Individual
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`Defendants was flawed and inadequate, was conducted out of the self-interest of the Individual
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`Defendants, and was designed with only one concern in mind – to effectuate a sale of the Company
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`by any means possible no matter the price.
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`36.
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`Notably, as indicated in the Preliminary Proxy, the sales process began as early as
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`February 2019, when the Company sought to sell its Foundry Sales Process division. Notably despite
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`later selling the remainder of the Company, the MagnaChip Board allowed the Company to be sold
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`off piecemeal.
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`37.
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`In addition, while the Preliminary Proxy does indicate that an “Ad Hoc Transaction
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`Committee” was created to run the sales process, it notes that such a committee was not created until
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`well into the sales process. In fact, the Ad Hoc Transaction Committee was not created until after the
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`Case 1:21-cv-03587 Document 1 Filed 04/22/21 Page 10 of 29
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`Company had entered into exclusivity discussions with one potentially interested third party, and that
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`exclusivity period had expired.
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`38.
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`Such a clear mismanagement of the sales process indicates a high likelihood of
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`corporate waste during this time as well as a lower eventual merger consideration. Despite this the
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`Preliminary Proxy fails to indicate specific reasoning as to why the sales process could not be done in
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`a more efficient manner.
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`39.
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`The Preliminary Proxy also fails to indicate what specific powers the Ad Hoc
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`Transaction Committee had in relation to approval of any potential agreement, nor does it adequately
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`indicate if the committee had full control over the sales process after its creation. In fact, the only
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`description given of the Ad Hoc Transaction Committee’s role was to ensure “efficient coordination”
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`between the Company and its advisors. Such a description is entirely lacking.
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`40.
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`In addition, the Preliminary Proxy is silent as to the nature of the various confidentiality
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`agreements entered into between the Company and potentially interested third parties throughout the
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`sales process, including Wise Road, whether these agreements differ from each other, and if so in what
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`way, including failing to disclosure of the similarities and/or dissimilarities of any specific conditions
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`under which any standstill provision contained in any entered confidentiality agreement entered into
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`between the Company and potentially interested third parties throughout the sales process, including
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`Wise Road, would fall away.
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`41.
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`It is not surprising, given this background to the overall sales process, that it was
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`conducted in a completely inappropriate and misleading manner.
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`The Proposed Transaction
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`42.
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`On March 26, 2021, MagnaChip issued a press release announcing the Proposed
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`Transaction. The press release stated, in relevant part:
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`Case 1:21-cv-03587 Document 1 Filed 04/22/21 Page 11 of 29
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`SEOUL, South Korea, March 26, 2021 — Magnachip Semiconductor
`Corporation (“Magnachip” or the “Company”) (NYSE: MX), the South Korean
`leader in display and power solutions, today announced that it has entered into a
`definitive agreement (the “Agreement”) with South Dearborn Limited, a company
`incorporated in the Cayman Islands, and Michigan Merger Sub, Inc., a Delaware
`corporation, which are investment vehicles established by Wise Road Capital LTD
`and certain of its limited partners (“Wise Road”).
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`Under the terms of the Agreement, Magnachip shareholders will receive $29.00 in
`cash for each share of Magnachip’s common stock they currently hold, representing
`a premium of approximately 75% to Magnachip’s 3-month volume-weighted
`average share price and approximately a 54% premium to the unaffected closing
`stock price on March 2, 2021, the last trading day before media reports of third-
`party interest in acquiring Magnachip. The all-cash transaction has an equity value
`of approximately $1.4 billion. The transaction is fully backed by equity
`commitments and not contingent on any financing conditions.
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`Following the closing of the transaction, Magnachip’s management team and
`employees are expected to continue in their roles, and the Company will remain
`based in Cheongju, Seoul and Gumi, South Korea. The transaction is expected to
`be seamless for customers and employees across Magnachip’s businesses.
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`Magnachip’s Chief Executive Officer, YJ Kim, said: “This transaction is in the best
`interests of all of our stakeholders, including shareholders, customers and
`employees. It will provide an excellent opportunity to accelerate our MX 3.0
`growth strategy. Given their deep industry expertise, Wise Road Capital is an ideal
`partner for Magnachip, and we look forward to working with them as we chart the
`next phase for our company. We remain grateful to our customers for their trust and
`to our fellow employees for their unwavering commitment to delivering industry-
`leading products to customers worldwide.”
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`Wise Road intends to work together with Magnachip’s management team to pursue
`the next step in the Company’s growth strategy and transform the Company into a
`true industry leader in the global display and power markets. Through its additional
`investment and global network, Wise Road will help Magnachip’s growth
`internationally. Wise Road remains absolutely committed to providing world-class
`products and services to the Company’s customers, while creating a stable
`environment for the company’s employees to grow and thrive.
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`The Board of Directors of Magnachip has unanimously approved the Agreement
`and recommends that Magnachip shareholders vote in favor of the transaction.
`Details of the transaction and the Agreement are included with the Company’s
`current report on Form 8-K, which will be filed with the United States Securities
`and Exchange Commission in due course.
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`The transaction is expected to close during the second half of 2021, subject to
`customary closing conditions, including the receipt of shareholder and regulatory
`approvals.
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`The Inadequate Merger Consideration
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`43.
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`Significantly, the Company’s financial prospects and opportunities for future growth
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`establish the inadequacy of the merger consideration.
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`44.
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`First, the compensation afforded under the Proposed Transaction to Company
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`stockholders significantly undervalues the Company. The proposed valuation does not adequately
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`reflect the intrinsic value of the Company. Moreover, the valuation does not adequately take into
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`consideration how the Company is performing and its promise.
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`45.
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`After releasing its Q4 and Full Year 2020 earnings, Nasdaq released its write up on the
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`Company’s positive results and its significance, “Magnachip (MX) came out with quarterly earnings
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`of $0.40 per share, beating the Zacks Consensus Estimate of $0.20 per share. This compares to
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`earnings of $0.32 per share a year ago. These figures are adjusted for non-recurring items. This
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`quarterly report represents an earnings surprise of 100%. A quarter ago, it was expected that this chip
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`products maker would post earnings of $0.06 per share when it actually produced earnings of $0.14,
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`delivering a surprise of 133.33%... Magnachip shares have added about 44.2% since the beginning of
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`the year versus the S&P 500's gain of 4.8%... It will be interesting to see how estimates for the coming
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`quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $0.13
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`on $123.25 million in revenues for the coming quarter and $0.75 on $528.95 million in revenues for
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`the current fiscal year.”
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`46.
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`On February 18, 2021, the Company issued a press release announcing a new
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`production expanding its product offerings, “Magnachip Semiconductor Corporation ("Magnachip")
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`(NYSE: MX) announced today that the Company has commenced full-scale mass production of its
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`Case 1:21-cv-03587 Document 1 Filed 04/22/21 Page 13 of 29
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`first 120Hz High Frame Rate (HFR) OLED display driver IC (DDIC) for QHD flexible displays,
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`followed by the successful release and initial production… The global 5G smartphone market is
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`growing rapidly with the ongoing release of new 5G smartphones from the leading smartphone
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`manufacturers. According to Omdia, a market research firm, global 5G smartphone shipments reached
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`220 million units in 2020 and would grow five-fold to 1,150 million units by 2023, which will account
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`for almost 80% of all smartphone shipments that year. ‘We have further strengthened our customers'
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`trust in and recognition of our technology and product quality with the mass production of this new
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`DDIC,’ said YJ Kim, CEO of Magnachip. "We will continuously build the foundation for the future
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`design requirements and expand new opportunities for foldable and 5G smartphones.’"
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`47.
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`On March 30, 2021, The Burn-In released an article of the deal, stating how the deal
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`will benefit Magnachip, “Magnachip revealed it would sell off its foundry services division as part of
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`an organization-wide streamlining initiative. The effort proved successful as it enabled the company to
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`grow its business and improve its liquidity. Its sales to Wise Road seems like a logical next step in its
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`evolution. The chipmaker specialized in fabricating automotive power management ICs and OLED
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`display drivers using 200mm wafers. In recent years, the firm struggled with diminishing demand for
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`its products amid competition from providers with more advanced nodes. But its manufacturing
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`technology has become highly sought after again following a market shift in late 2020. Following the
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`outbreak of COVID-19, personal transport sales plummeted worldwide. But after the world began
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`adjusting to the pandemic’s impact, interest in car ownership rebounded sharply. In fact, the demand
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`for new vehicles contributed to a global shortage of electronic parts. As a result, interest in 8-inch
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`wafers has become so strong, secondhand 200mm equipment has become a hot commodity. Provided
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`the transaction goes through, Magnachip has the potential to significantly improve its earnings amid
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`COMPLAINT
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`Case 1:21-cv-03587 Document 1 Filed 04/22/21 Page 14 of 29
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`worldwide semiconductor scarcity. The firm will be in a better position to realize its market
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`opportunities with Wise Road’s financial support and guidance.”
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`48.
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`Clearly, while the deal will be beneficial to Wise Road it comes at great expense to
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`Plaintiff and other public stockholders of the Company,
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`49. Moreover, post-closure, Plaintiff will be frozen out of any future benefit from his
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`investment in Magnachip’s bright future.
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`50.
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`It is clear from these statements and the facts set forth herein that this deal is designed
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`to maximize benefits for the Wise Road at the expense of Plaintiff as a public stockholder, which
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`clearly indicates that Plaintiff and other stockholders were not an overriding concern in the formation
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`of the Proposed Transaction.
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`Preclusive Deal Mechanisms
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`51.
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`The Merger Agreement contains certain provisions that unduly benefit the Wise Road
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`by making an alternative transaction either prohibitively expensive or otherwise impossible. Notably,
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`in the event of termination, the merger agreement requires MagnaChip to pay up to $42.1 million to
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`the Wise Road and/or its affiliates, if the Merger Agreement is terminated under certain circumstances.
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`Moreover, under one circumstance, MagnaChip must pay this termination payment even if it
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`consummates any competing Acquisition Proposal (as defined in the Merger Agreement) within 12
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`months following the termination of the Merger Agreement. The termination fee will make the
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`Company that much more expensive to acquire for potential purchasers. The termination fee in
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`combination with other preclusive deal protection devices will all but ensure that no competing offer
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`will be forthcoming.
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`52.
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`The Merger Agreement also contains a “No Solicitation” provision that restricts
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`MagnaChip from considering alternative acquisition proposals by, inter alia, constraining
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`COMPLAINT
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`Case 1:21-cv-03587 Document 1 Filed 04/22/21 Page 15 of 29
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`MagnaChip’s ability to solicit or communicate with potential acquirers or consider their proposals.
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`Specifically, the provision prohibits the Company from directly or indirectly soliciting, initiating,
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`proposing or inducing any alternative proposal, but permits the Board to consider an unsolicited bona
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`fide “Takeover Proposal” if it constitutes or is reasonably calculated to lead to a “Superior Proposal”
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`as defined in the Merger Agreement.
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`53. Moreover, the Merger Agreement further reduces the possibility of a topping offer from
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`an unsolicited purchaser. Here, the Individual Defendants agreed to provide to the Wise Road and/or
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`its affiliates information in order to match any other offer, thus providing the Wise Road access to the
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`unsolicited bidder’s financial information and giving Parent the ability to top the superior offer. Thus,
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`a rival bidder is not likely to emerge with the cards stacked so much in favor of the Wise Road.
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`54.
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`These provisions, individually and collectively, materially and improperly impede the
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`Board’s ability to fulfill its fiduciary duties with respect to fully and fairly investigating and pursuing
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`other reasonable and more valuable proposals and alternatives in the best interests of the Company,
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`Plaintiff and its public stockholders.
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`55.
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`Accordingly, the Company’s true value is compromised by the consideration offered
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`in the Proposed Transaction.
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`Potential Conflicts of Interest
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`56.
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`The breakdown of the benefits of the deal indicate that MagnaChip insiders are the
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`primary beneficiaries of the Proposed Transaction, not the Company’s public stockholders such as
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`Plaintiff. The Board and the Company’s executive officers are conflicted because they will have
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`secured unique benefits for themselves from the Proposed Transaction not available to Plaintiff as a
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`public stockholder of MagnaChip.
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`- 15 -
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`COMPLAINT
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`Case 1:21-cv-03587 Document 1 Filed 04/22/21 Page 16 of 29
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`57.
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`Notably, while the Preliminary Proxy provides the below information regarding the
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`amount of Company shares held by Company insiders, it fails to include an accounting of the dollar
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`valuation of such shares.
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`Amount and
`Nature of
`Beneficial
`Ownership(1)
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`3,214,537
`3,028,318
`2,959,604
`2,612,588
`2,587,317
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`—
`110,645
`282,421
`128,545
`157,329
`352,981
`582,543
`6,000
`228,875
`206,556
`5,000
`—
`7,140
`2,060,895
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`Percent of
`Class(1)
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`6.9 %
`6.2 %
`6.4 %
`5.6 %
`5.6 %
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`*
`*
`*
`*
`*
`*
`1.3 %
`*
`*
`*
`*
`*
`*
`4.3 %
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`Name and Address of Beneficial Owner
`Principal Stockholders
`Oaktree Value Opportunities Fund Holdings, L.P.(2)
`Brigade Capital Management, LP(3)
`Federated Hermes, Inc.(4)
`Rubric Capital Management LP(5)
`Morgan Stanley(6)
`Directors and Named Executive Officers
`Kyo-Hwa (Liz) Chung
`Melvin Keating(7)
`Ilbok Lee(8)
`Camillo Martino(9)
`Gary Tanner(10)
`Nader Tavakoli(11)
`Young-Joon Kim(12)
`Young Soo Woo(13)
`Theodore Kim(14)
`Woung Moo Lee(15)
`Chan Ho Park(16)
`Jonathan Kim(17)
`Tae Jong Lee(18)
`Directors and current Executive Officers as a group (11 persons)(19)
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` *
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` Less than one percent
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`58. Moreover, upon the consummation of the Proposed Transaction, the Preliminary Proxy
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`indicates that each outstanding Company equity award will be canceled and converted into the right
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`to receive certain consideration according to the merger agreement.
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`59.
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`The cash consideration payab