Two stocks are falling today after one company suddenly terminated its plans to acquire the other. MaxLinear (NASDAQ:MXL) had previously planned on adding Silicon Motion Technology (NASDAQ:SIMO) to its holdings. However, yesterday the hardware and semiconductor producer announced that it would not be moving forward with the highly anticipated cash and stock deal, worth almost $4 billion. The company cited certain conditions not being satisfied as the reason for it but also made reference to “deteriorating business conditions” at Silicon Motion. This raises some red flags regarding Silicon Motion, and as a result, SIMO stock is trending downward as investors consider the company’s uncertain future.
Does this mean that MaxLinear has shined a light on problems that make Silicon Motion a poor investment? Let’s take a closer look at this failed deal and the reasons behind it.
What’s Happening With SIMO Stock
Despite an attempted rally this morning, SIMO stock remains firmly in the red. As of this writing, it is down almost 15%, and its current trajectory suggests that it has even further to fall. Even with the surge it saw from the pending acquisition, the stock has spent the past month trending downward, losing 30% of its value in the process. That said, MXL stock is having a worse day and has currently fallen more than 20%.
Obviously, the termination of this deal hasn’t been good for either stock. But MaxLinear’s management clearly saw terminating it as the right move for the company and for its investors. While MXL stock is likely to bounce back as the dust settles, investors are likely to be evaluating SIMO stock with some caution. The former buyer has alleged that “Silicon Motion has suffered a Material Adverse Effect that is continuing.” And as Barron’s notes, that is a reference to business conditions failing to improve. If that claim is true, SIMO stock will have a harder time recovering as investors shift their focus elsewhere
Of course, Silicon Motion could shake this off if it announces another positive growth catalyst in the near future. But another acquisition isn’t likely after the recent one fell through in a very public way.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
