AMD to buy graphic co ATI for $5.4 bn in cash, stock
Advanced Micro Devices, the No. 2 supplier of computer processors, said on Monday it would buy graphics chip maker ATI Technologies for $5.4bn to expand its product mix as it battles Intel.
By Agencies |
NEW YORK: Advanced Micro Devices, the No. 2 supplier of computer processors, said on Monday it would buy graphics chip maker ATI Technologies for $5.4bn to expand its product mix as it battles Intel.
The deal, which was criticised by some analysts for being too costly when whispers about it first emerged, could shake up a chip industry embroiled in a bitter price war between AMD and larger rival, Intel.
Under terms of the pact, AMD will pay $4.2bn in cash and 57m shares of AMD common stock, based on the number of shares of ATI common stock outstanding on July 21. That amounts to $20.47 for each ATI share, a 24% premium over ATI’s closing stock price of $16.56 on Nasdaq on Friday.
AMD would gain one of two major graphics chips makers, the other being Nvidia. ATI is also a big supplier of chipsets for AMD and Intel. “It’s a brilliant strategic move. AMD essentially have cornered the high end graphics platform for them.
Intel is getting squeezed out there,” said analyst Eric Ross of ThinkEquity Partners. But he noted that AMD was paying a lot more than it would have six months ago, when AMD’s stock price was much higher at around $40 per share and before rumors of the deal pushed up ATI’s stock price.
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Since rumors of a deal first emerged in May, many industry analysts have voiced skepticism, saying it made little financial or strategic sense for AMD to buy ATI outright. One concern is that the price would be too high for AMD as it fights a bruising price war with Intel.AMD, which has a market capitalization of about $8.8bn, said the ATI deal will aid its delivery of products that help improve its position in commercial, mobile computing, gaming, media and emerging markets.
The agreement, which is subject to ATI shareholder approval, is expected to slightly add to earnings in ‘07, and AMD said it will be “meaningfully accretive” in ‘08, before the inclusion of acquisition-related charges. It sees a reduction of operating expenses by about $75m for the combined company by the end of ‘07.
The consideration for each outstanding share of ATI comprises $16.40 in cash and 0.2229 shares of AMD common stock, the companies said. AMD said it expects to finance the cash portion of the transaction with a combination of cash and new debt.
It has obtained a $2.5bn term loan commitment from Morgan Stanley Senior Funding which, together with combined existing cash, cash equivalents, and short-term investment balances of about $3bn, provides full funding for deal, it said.
ATI said it has agreed to a termination fee of $162m. The deal is subject to the approval of ATI shareholders and regulators in the United States and Canada.
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