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AMD stock rose on Monday in response to LBO rumors, but then fell on Tuesday

Shares of AMD rose on Monday amidst rumors of a leveraged buyout. AMD shares were up 74 cents, or 5 percent, at $15.43 in yesterday’s morning trading on the New York Stock Exchange. AMD has traded between $14.43 and $42.70 over the last year.

“It wouldn't surprise me if there was some sort of 'creative solution' in the works to help (strengthen) AMD's balance sheet,” said FTN Midwest Securities analyst JoAnne Feeney to the AP. “They took on a fair amount of debt for the ATI acquisition, and clearly AMD needs to do something about its balance sheet.”

"When they acquired ATI, they had to borrow quite a lot to finance that purchase and that's created a higher debt-to-capital ratio than they had in the past. It's still in that squeeze,” Feeney said to Reuters.

“The volume in AMD March calls have been abnormally high,” said Steve Sosnick, equity risk manager at Timber Hill and common source for M&A commentary. “There are rumors of a private equity buyout. At least in the near term, the options market is giving some credence to these rumors.”

While the analysts quoted by the recent news agencies reports seem to think that such a buyout is possible, another Wall Street analyst, American Technology Research's Doug Freedman, said earlier this month that AMD would be an unattractive candidate for private equity firms due to the company’s struggling cash flow from its price war with Intel.

In related news, FTN Midwest today cut its stock rating for AMD from a “buy” to a “neutral,” citing that the Sunnyvale company could be facing increased competition if Intel is able to deliver its 45nm product ahead of schedule. Analysts believe that AMD would have to cut prices even further to avoid further losses of market share, and may not recover until mid-2008.

Shares of AMD current sit down nearly 4 percent at $15.06.

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My fear..
By Obujuwami on 2/27/2007 5:36:58 PM , Rating: 2
IF AMD/ATI is bought out will that make thier product any better or worse?

They might have fincial backing to invest in new projects but I can see the new buyers shrinking the company; cutting jobs, freezing any new projects for atleast one year, and allowing the company to recover from a major buy out.

I think that a buy out would actually be bad for AMD as it would be bad for: Intel, HP, Lenovo, Acer, and many other companies. AMD will recover from the purchase but it will take time.

Can anyone please comment on this as I might be the only pro AMD person posting here.

RE: My fear..
By Viditor on 2/27/2007 6:35:20 PM , Rating: 2
I think that a buy out would actually be bad for AMD

That could be good or bad. The only real net changes are that
1. AMD ends up with more cash (good)
2. The members of the board of directors change (good or bad, depending on what they do).

Remember that this is an Equity Firm "purchase", and not another tech company looking for a synergistic merger. The only changes made would be financial ones...and final managerial decisions would rest with the new BoD.

RE: My fear..
By Tom Tom on 2/27/2007 7:45:44 PM , Rating: 2
Remember that this is an Equity Firm "purchase", and not another tech company looking for a synergistic merger

Im starting to wonder if IBM isnt looking at AMD here. It sounds awkward but so did the rumors of AMD+ATI when they were swirling.

RE: My fear..
By Viditor on 2/28/2007 5:22:09 AM , Rating: 2
Im starting to wonder if IBM isnt looking at AMD here

I would agree with that, but the rumour is that IBM is actually looking to get out of the semiconductor business in the next decade...I doubt that they'd be interested.

RE: My fear..
By Lakku on 2/27/2007 7:42:24 PM , Rating: 2
Well, perhaps the cash flow can help get R600 out. Last I heard, from Xbitlabs, is that R600 is now delayed until Q2, delayed from its debut at CeBIT. If this is true, nVidia will have a near top to bottom DX10 line out by then, and probably have fixed their drivers as well. It doesn't look good for the ATi side of AMD right now, and I wonder if they are having driver problems with DX10 or some manufacturing problem. Or it could be the 240 to 270w power draw, which is near 100w more then the 8800gtx (draws around 170 to 185) that they are working on.

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