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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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RE: This wouldn't change anything?
By djc208 on 2/27/2007 5:42:30 PM , Rating: 2
A buyout is more "hostile" than being sold. Anyone who buys a share of AMD stock owns a piece of the company (1/however many shares of stock there are). If AMD sells it would sell it's shares of the company to someone else and become part of their company. Like ATI, when ATI sold to AMD anyone who owned ATI stock got it exchanged for AMD stock at some ratio based on the sale terms.
In a buyout the company tries to buy enough stock to have a controlling interest in the company, in which case they have the most say in what goes on in the company (a share is like a vote, the more shares, the more your vote counts). Both can be good for investors, just in different ways.
As for what it could mean to us or the company, well it could mean anything, depending on who bought it and why. Like someone else said, the company or companies that purchase AMD could try to get it financially stable, supply the money to make it competitive with Intel again, and re-sell the stock to make a proffit. Or they could hold it if the proffits from the company are good enough. They could also split it up and sell off the parts to whoever was willing to pay. CPU designs to IBM, GPUs to Microsoft, fabs to different companies, etc. On one hand it could mean AMD would be more competetive with Intel and Nvidia, or it could be killed and sold for scrap leaving us with one CPU company again.


RE: This wouldn't change anything?
By archcommus on 2/27/2007 6:27:51 PM , Rating: 2
So they bought ATI with a bright future in mind, and that very feat has put them in such a bad financial state that now buyouts are being considered? This doesn't seem right. We go from AMD assuming a huge debt for the better of the company in the long run to six months later they might not be able to survive on their own.

I understand AMD was hit hard with price wars and Intel competition, but I didn't think anything was dire yet.


RE: This wouldn't change anything?
By Viditor on 2/27/2007 6:43:45 PM , Rating: 2
quote:
So they bought ATI with a bright future in mind, and that very feat has put them in such a bad financial state that now buyouts are being considered?

ATI has very little to do with it, and their financial state isn't that bad.
The price war with Intel is 99% of the reason for the current low share price...notice that Intel is in the same boat (they have had a superior chip since July, and their share price is the same as a year ago).


RE: This wouldn't change anything?
By stromgald on 2/27/2007 6:57:01 PM , Rating: 2
Actually since July, Intel's stock has been up as much as 25%. Right now it's only up about 12%. Your statement is misleading because although Intel's stock price since from Feb '06 to Feb '07 is about the same, there was in decline before July '06 and increased steadily until Nov'06. Since then it's been pretty stable from $20-22/share.


RE: This wouldn't change anything?
By Viditor on 2/27/2007 8:28:37 PM , Rating: 2
quote:
Actually since July, Intel's stock has been up as much as 25%

You need to look at the same dates year on year as sales are seasonal...
The same fluctuations happen to AMD and the other semicondutor stocks.
So no, it's really not misleading to base changes on the same date a year ago.
And the price has stayed the same...


RE: This wouldn't change anything?
By Viditor on 2/27/2007 8:40:19 PM , Rating: 2
BTW, you should also keep in mind that Intel spends more to keep it's share price up (dividends, share buybacks) than AMD makes in a year...
As of the end of Q3 06, Intel had spent (for the 2006 year) $3.6 Billion for share buybacks, and $1.7 Billion in dividends.
This money is spent strictly to keep shareholders happy and make the stock more attractive...the net result was to have the stock price stay the same.


RE: This wouldn't change anything?
By Adonlude on 2/28/2007 1:18:40 PM , Rating: 2
Um, yea, that is what a successfull, healthy company does. They repay their investors through dividens and buybacks. Why are you presenting this as if it's an artificial or "cheap" way to create a higher stock price???

I dont think you understand how stock works. AMD has been performing bad, Intel has been performing good. Good = more money in Intels coffers = more money for company owners (including investors) = ownership of Intel being more valueable (higher stock price).

When a large company like Intel is running a very successful bussiness sometimes it is not beneficial to invest its massive profits in further growth. For example: If Intel is alreay meeting current processor demands does it need to build another fab? Another fab in this situation would lead to overstock of processors which takes away value for company owners. In these cases it is better to give cash directly back to company owners (investors).

Intel spends more to keep its stock price up than AMD you say? Yep, that is becuase Intel is currently far more profitable than AMD... but this is the wrong way to look at it.


By Viditor on 3/1/2007 11:23:17 AM , Rating: 2
quote:
I dont think you understand how stock works

Golly, you must be right...I better liquidate my own portfolios and tell all those people whose portfolios I manage that I just don't get it...
/sarcasm
quote:
AMD has been performing bad, Intel has been performing good

So THAT's how it works...I knew it was a mistake to study those balance sheets, obviously both companies were lying!
quote:
For example: If Intel is alreay meeting current processor demands does it need to build another fab?

Absolutely...I'm sure they just had all those thousands of lay-offs to be mean. Maybe they didn't like those people?
quote:
Intel spends more to keep its stock price up than AMD you say?

No, I said Intel spends more to keep the stock price up than AMD makes in total gross revenue...


RE: This wouldn't change anything?
By Phynaz on 2/28/2007 12:30:41 PM , Rating: 2
quote:
ATI has very little to do with it, and their financial state isn't that bad.


You really have take closer look. AMD is in one serious cash flow crunch right now.


By Viditor on 3/1/2007 11:37:52 AM , Rating: 2
quote:
You really have take closer look. AMD is in one serious cash flow crunch right now

Believe me, I have looked VERY closely at their cash...and you're right, it's tight. But with all of the solutions available to Bob Rivet, it's really not that serious (despite what Mr. Freeman thinks).

Of course the best way is to increase revenues, and Barcelona should help with that tremendously (remember that server revenue has the highest margin, and especially the quad core), but they can also cut costs...and as they are to be completely converted to 65nm/300mm by July in Fab36, COGS will reduce significantly.
There is also the option to slightly dilute shares with a bond offering, but that is a definate plan B...

Either way, unless Barcelona is a dog or they can't produce it as economically as they have the K8, their financial state really isn't that bad.


"If you look at the last five years, if you look at what major innovations have occurred in computing technology, every single one of them came from AMD. Not a single innovation came from Intel." -- AMD CEO Hector Ruiz in 2007











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