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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 Phynaz on 2/28/2007 12:30:41 PM , Rating: 2
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
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.

"Mac OS X is like living in a farmhouse in the country with no locks, and Windows is living in a house with bars on the windows in the bad part of town." -- Charlie Miller

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