Advanced Micro Devices (AMD), the number-two supplier of computer processors, said yesterday it would acquire graphics chip maker ATI Technologies for $5.4 billion (€ billion) in cash and stock to expand its product mix and grow market share as it battles Intel.
Under terms of the deal, AMD will acquire all of the outstanding common shares ofATI for $4.2 billion in cash and 57 million shares of AMD common stock, based on the number of shares of ATI common stock outstanding on July 21st.
AMD said it would pay $20.47 for each ATI share. That marks a 24 per cent premium over ATI's closing stock price of $16.56 on Nasdaq on Friday. The stock added another 7 per cent to $17.68 in after-hours trading amid media reports of the expecteddeal.
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.
The company has obtained a $2.5 billion term loan commitment from Morgan Stanley Senior Funding which, together with combined existing cash, cash equivalents and short-term investment balances of about $3 billion, provides full funding for deal, it said.
ATI said it has agreed to a termination fee of $162 million. The deal is subject to the approval of ATI shareholders and regulators in both the United States and Canada.
Talk of a tie-up between the two companies first emerged in May, but many industry analysts said it made little financial or strategic sense for AMD to buy ATI outright.
In addition to making graphics chips, ATI also supplies chipsets - the cluster of secondary chips and interfaces that surround a computer's processor - for AMD and Intel products.
AMD anticipates it will finance the cash portion of the transaction with a combination of cash and new debt. AMD has obtained a $2.5 billion term loan commitment from
ATI has received an opinion from its financial advisors that the transaction from a financial point of view is fair to its shareholders. The transaction was unanimously approved by the board of directors of each company. The transaction is subject to ATI shareholder approval.
The technology sector in the US has been under great pressure in recent days. Dell last week issued a profit warning and Yahoo also posted disappointing results. However recent results from Google and Apple were reasonably healthy.
AMD recently reported sales of $1.22 billion, operating income of $102 million, and net income of $89 million, or $0.18 per share, for the quarter ended July 2nd, 2006. These results included $18 million of employee stock-based compensation.
