What happened
Shares of Silicon Motion Technology (NASDAQ: SIMO) skyrocketed more than 80% on Wednesday, according to data provided by S&P Global Market Intelligence, after Chinese regulators approved its previously announced acquisition by MaxLinear(NASDAQ: MXL). Meanwhile, MaxLinear shares were down 20.8% as of 2:36 p.m. ET given the dilutive nature of the deal.
So what
The $3.8 billion acquisition was originally announced back in May 2022, but one key stumbling block remained in that it required approval of Chinese regulators. Two Chinese government organizations -- the National Development and Reform Commission and the Ministry of Industry and Information -- approved the terms of the deal last month, but China's State Administration for Market Regulation finally granted conditional approval earlier today after completing its own anti-monopoly review.
Now what
Per the terms of the deal, MaxLinear will pay investors $93.54 in cash and 0.388 shares of MaxLinear for every Silicon Motion share they own. So with around 33.41 million shares of Silicon Motion outstanding and 80 million shares of MaxLinear as of this writing, MaxLinear's drop isn't indicative of the market's pessimism surrounding the deal, but rather a reflection of those new shares to be issued.
With Silicon Motion shares trading slightly above the cash acquisition premium now, Silicon Motion investors can still wait to collect their MaxLinear shares assuming the merger is completed as planned in the coming quarters. But with the vast majority of this merger arbitrage opportunity now realized, I also wouldn't blame investors for selling now and putting that money to work in any number of other promising tech stocks.
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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
