Silicon Motion Says It Will Seek to Enforce Merger Deal With MaxLinear

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It looks like the

Silicon Motion

drama is going to drag on for a while.

On Wednesday, the chip maker

MaxLinear

(ticker: MXL) shocked investors by announcing the termination of its deal to buy Silicon Motion Technology (SIMO). That happened just hours after the equally surprising news that the transaction had been approved by Chinese regulators, seemingly clearing the way for completion of a deal that pending for more than a year.

But Silicon Motion said Thursday that it “intends to enforce” the merger agreement.

More than 14 months ago, MaxLinear had announced an agreement to buy Silicon Motion. Terms called for MaxLinear to pay $93.54 a share in cash and 0.388 shares of common stock for each American depositary share of Hong Kong-based Silicon Motion.

In a news release late Wednesday, MaxLinear said that it terminated the deal because “certain conditions to closing set forth in the merger agreement are not satisfied and are incapable of being satisfied.” MaxLinear also said Silicon Motion “has suffered a Material Adverse Effect that is continuing,” a reference to deteriorating business conditions at the company. And it said that Silicon Motion “is in material breach of representations, warranties, covenants, and agreements” in the merger pact, giving MaxLinear the right to terminate.

In its announcement on Thursday, Silicon Motion responded that MaxLinear’s “eleventh-hour purported termination of its merger agreement with Silicon Motion is invalid and reflects a repudiation of MaxLinear’s obligations rather than any failure of Silicon Motion’s conditions to closing.”

Silicon Motion added that it has “complied with its obligations under the agreement,” and denied any “material adverse effect.”

Silicon Motion concluded that it “expects MaxLinear to abide by its obligation under the merger agreement and intends to vigorously enforce its rights under the merger agreement.”

Wedbush analyst Matt Bryson said in a research note Thursday that while it is difficult to predict what will happen without more information about the issues MaxLinear has raised, he struggles to see how the company can simply walk away from the deal. He sees “a range of potential outcomes,” including that the deal goes through in line with the original terms. 

The two stocks continue to gyrate wildly. Silicon Motion shares, which on Tuesday closed at $52.20, traded as high as $94.20 on Wednesday, tumbling to $65.35 by the close, after MaxLinear announced termination of the deal, The price was down another 13% to $56.82 by late Thursday morning.

Neither company immediately responded to a request for comment.

MaxLinear shares, which ended Tuesday at $34, dropped as low as $24.33 on Wednesday, recovering to $29.61 at the close. But on Thursday morning, the stock was down another 23% to $22.75.

Write to Eric J. Savitz at eric.savitz@barrons.com