Post by Drew on Jul 24, 2006 13:04:52 GMT -5
After months of speculation, AMD has today confirmed that it will acquire graphics chip maker ATI Technologies, which supplies the GPUs for the Xbox 360 and Wii consoles. The deal creates a "processing powerhouse" and immediately gives AMD a broader portfolio to compete with Intel.
Intel rival Advanced Micro Devices Inc. (AMD) today confirmed that the company has reached an agreement with ATI Technologies to acquire the graphics chip maker for $5.4 billion. According to the companies, the merger "will combine AMD's technology leadership in microprocessors with ATI's strengths in graphics, chipsets and consumer electronics. The result is a processing powerhouse: a new competitor, better equipped to drive growth, innovation and choice for its customers in commercial and mobile computing segments and in rapidly-growing consumer electronics segments."
Under the terms of the deal, AMD will pay $4.2 billion in cash and 57 million shares of its stock in order to acquire all of ATI's outstanding stock. The board of directors for each company has unanimously approved the transaction. The deal is expected to close in Q4 2006 and is subject to approval by ATI shareholders, court approval, regulatory approvals and other customary closing conditions.
AMD has also noted that it has taken out a new loan in order to help pay for the acquisition. "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 Morgan Stanley Senior Funding, Inc. which, together with combined existing cash, cash equivalents, and short term investments balances of approximately $3.0 billion, provides full funding for the transaction," the company stated.
The merger between the two computer chip companies has been rumored for months. In May an RBC Capital Markets analyst predicted that AMD would purchase ATI. "The synergies of this seem consistent with the recent announcements by AMD to significantly increase capacity over the next few-years," said analyst Apjit Walia.
"ATI shares our passion and complements our strengths: technology leadership and customer centric innovation," said AMD Chairman and CEO Hector Ruiz. "Bringing these two great companies together will allow us to transcend what we have accomplished as individual businesses and reinvent our industry as the technology leader and partner of choice. We believe AMD and ATI will drive growth and innovation for the entire industry, enabling our partners to create differentiated solutions and empowering our customers to choose what is best for them."
"This combination means accelerated growth for ATI, and broader horizons for our employees," added Dave Orton, President and CEO of ATI. "All of our product lines will benefit. Joining with AMD will enable us to innovate aggressively on the PC platform, and continue to invest significantly in our consumer business to stay in front of our markets."
According to the terms of the deal, Orton will serve as an executive vice president of the ATI business division, reporting to the AMD Office of the CEO, comprised of Chairman and CEO Hector Ruiz and President and Chief Operating Officer Dirk Meyer. Additionally, two ATI directors will join AMD's board of directors upon closing of the transaction.
In the last four quarters, a combined AMD and ATI would have achieved about $7.3 billion in total consolidated sales during with a workforce of approximately 15,000 employees. AMD said it expects the deal be slightly accretive to earnings in 2007, and meaningfully accretive in 2008. Operating expenses for the combined company (headquartered in Sunnyvale, CA) are anticipated to be reduced by roughly $75 million by the end of 2007.
The news was quite positive for ATI investors, as ATI's shares rose about 18 percent. AMD's stock, however, dropped nearly 6 percent in midday trading.
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