SIMO arb pitch:
– SIMO is being acquired by MaxLinear.
– The situation presents an opportunity where an investor should win regardless of the current merger outcome.
– The large merger spread is due to Chinese regulatory approval uncertainty.
– If merger closes, investors should pocket a nearly 70% return.
– If the merger gets blocked by Chinese regulators, shareholders will be left with a fast-growing semiconductor company, which is considered a dominant player in the NAND flash controller space with an estimated 40% market share.
– The company is likely to benefit from flash memory market tailwinds such as growing data usage and the shift from HDD to SSD.
SIMO valuation:
– If the merger closes, investors will pocket a nearly 70% return.
– If the merger breaks, over the last 10 years the company has traded at a P/E of 15-20x and an average EV/EBIT, which is much closer to actual free cash flow, of around 12x.
– Author argues that SIMO is cheap versus its historical EV/EBIT trading range, which implies a $120/share stock price if the merger breaks.
Exp. gain: +70%-85%
Full write-up (free guest account required):
https://www.valueinvestorsclub.com/idea/SILICON_MOTION/4541320380