MaxLinear CEO, CFO Got 'Cold Feet' Over $3.8B Silicon Motion Deal: Shareholder Suit

MaxLinear falsely assured investors it would complete its $3.8 billion Silicon Motion buy, even after it “had already decided to abandon the deal,” alleged a shareholder complaint Thursday (docket 3:24-cv-01033) against the RF semiconductor maker and two executives in U.S. District Court for Southern California in San Diego.

Plaintiffs in the case, HBK Master Fund and HBK Merger Strategies, said MaxLinear’s proposed acquisition of Silicon Motion was to be the defendant’s largest purchase to date. The merger consideration represented a 50% premium to Silicon Motion’s stock price when the companies announced on May 5, 2022, MaxLinear would buy Silicon Motion for $3.8 billion in cash and stock, the complaint said.

MaxLinear and defendants Kishore Seendripu, chairman and CEO, and Chief Financial Officer Steven Litchfield presented the deal as positive for MaxLinear’s shareholders as well as Silicon Motion’s, the complaint said. The defendants called the transaction “immediately and materially accretive” to MaxLinear’s operating income, and said it would allow for “increased capacity” for the fabless semiconductor company’s “expansive and diverse technology,” said the complaint. They said the deal would allow MaxLinear to expand its geographic reach, particularly in Asia.

Two “fundamental risks” facing the company were regulatory approval and that one of the parties would break the agreement, the complaint said. During the relevant period, the defendants represented that MaxLinear was “fully committed” to the buy, would not break the deal and that as soon as approval was secured from China’s antitrust regulator, the State Administration for Market Regulation (SAMR), the transaction would close.

There was no mention of the possibility that Silicon Motion might break the agreement, given the “substantial premium” it would be getting, and as a result, Silicon Motion analysts’ commentary on the odds of the merger completing “focused entirely on regulatory approval and not at all on the possibility of an about-face by MaxLinear,” the complaint said. MaxLinear continued to promote the synergies and other expected benefits, saying it would complete the acquisition once SAMR approved the deal, the complaint said.

On a May 3, 2023, analyst call, MaxLinear “affirmed its commitment to the merger," which was still on track, said the complaint. A company spokesperson said nothing had changed regarding the deal. A month later on a webinar, Litchfield and the spokesperson said MaxLinear was still very interested in acquiring SIMO and that they were awaiting SAMR approval. During a June conference, Seendripu called SIMO a “very strategic asset” and said MaxLinear was still “very, very … bullish” about the acquisition, said the complaint. Seendripu “did not mention a material adverse event and did not disclose MaxLinear had no intention of completing the merger,” the complaint said.

On June 28, 2023, both parties refiled their application for U.S. antitrust approval under the Hart-Scott-Rodino Antitrust Improvements Act, to ensure SIMO investors that only Chinese approval ("and certainly not MaxLinear’s cold feet") stood in the way of the deal, alleged the complaint. From June 28 to July 26, the defendants “allowed the market to believe that the only relevant variable to the consummation” of the deal was Chinese regulatory approval and that MaxLinear “was fully committed to the transaction,” the complaint said.

But the defendants’ “scheme hid the relevant truth from investors,” said the complaint. They now admit that on or before May 5, 2023, MaxLinear determined that Silicon Motion suffered an “incurable material adverse event (MAE)" under the terms of the merger agreement and that SIMO “was in material breach” of the merger agreement, it said. Both events rendered the merger agreement “a nullity as of that date,” which the complaint called “highly material facts” to investors and Silicon Motion. The defendants assert they had the right to terminate because merger conditions weren’t satisfied or waived as of May 5, the “first outside extended date.”

“In truth, having gotten cold feet,” the defendants’ “only hope was that the Chinese regulator would block the Merger and then Defendants could have litigated the breakup fee with Silicon Motion,” the complaint alleged. The “breakup fee of $160 million paled in comparison to the $4 billion price tag in cash and stock for the closing of the transaction,” the complaint said. If the regulator had refused approval, MaxLinear would be in a better position to pursue the other leg of its scheme: declaring an MAE and seeking to avoid any liability for backing out of the deal, the complaint alleged.

In that case, MaxLinear would be in “an even better position to avoid consequences if the second outside date (August 7) passed, as it would have multiple independent reasons for termination and might even be able to lay the blame entirely on Silicon Motion itself, as both Silicon Motion and MaxLinear had been responding to information requests from SAMR,” the complaint said.

Though the MaxLinear defendants determined “or concocted” that an MAE had occurred and that SIMO had committed other material breaches “long before” MaxLinear’s public statements about their intent to complete the transaction, they didn’t want to breach or terminate the agreement for fear of litigation and the agreement’s provision that would have required it “to go through with the deal that they no longer wanted – and uncapped damages,” it said. SAMR denial, or a delay past the merger agreement’s deadline, would give MaxLinear an “easy out,” it said.

MaxLinear’s choice was to force a $4 billion acquisition that it didn’t want or give, at minimum, Silicon Motion a $160 million termination fee, said the complaint. “The scheme unraveled" on July 26 when SAMR approved the merger and investors, including plaintiffs, “purchased tens of millions of dollars of Silicon Motion shares relying on MaxLinear’s assurances, commitments, acts, and scheme,” the complaint said. Silicon Motion American depositary shares (ADS) jumped 82% from the prior-day close to $95.33 in anticipation of the deal closing by the Aug. 7 deadline, the complaint said.

But at about 3 p.m. that day, less than 10 hours after SAMR approved the agreement, MaxLinear “stunned the market by reversing course” and terminating the acquisition, announcing in a news release that SIMO had been in material breach of the agreement since May 5, “conveniently, the prior outside date,” and stating certain conditions of the agreement hadn’t been satisfied as of that date, said the complaint. The price of Silicon Motion ADSs fell from $95.53 to $65.35 “in one hour, on massive volume,” it said. It fell further on July 27 to close at $52.51. “MaxLinear’s backing out of the deal thus caused a two-day drop of over 44%, or nearly $43 per ADS from the July 26 intra-day high,” alleged the complaint.

The plaintiffs claim violations of the Securities Exchange Act and California Civil Code, plus common law fraud and negligent misrepresentation. They seek damages in an amount to be determined at trial, with interest; pre- and post-judgment interest; punitive damages; and attorneys’ fees and costs.