AMD to swallow ATI for $5.6 billion?

Posted by Wolfgang Gruener

Chicago (IL) - Rumors about an upcoming Amd bid to acquire chipset company and grphics chip develop AMD have resurfaced on Friday. According to an article published by globeandmail.com, AMD could make a friendly offer as early as next week. The website referred to sources, which suggested that AMD is considering a $5.6 billion takeover bid.

AMD's board apparently has approved a takeover offer, "according to an investment banker familiar with the talks."

ATI's shares were traded at $16.56 late Friday, up $0.83 or 5.3% for the day. At the current stock price, the company is valued at a market capitalization of $4.2 billion. AMD traded at $18.26, down almost 16% for the day as a result of a rocky second quarter.

Considering AMD's current balance sheet, a takeover of ATI could be a significant stretch for AMD. The company has just about $2.5 billion in its warchest, which would mean that a the majority of the speculated takeover amount will consist of AMD stock.

It is unclear at this time what benefits the addition of ATI would bring to AMD's business. Graphics as well as chipsets diversify AMD's business, but are also viewed as potential distractions from the firm's core business. The fact that ATI is currently shipping low-end chipsets to Intel also appears to be not a convincing reason for AMD to shell out more than $5 billion for the Canadian company.

At this time, ATI also does not appear to be an attractive takeover target in a financial view: The firm currently holds assets valued at about $1.35 billion - $166 million of that in cash - and recent quarter earnings were just above $32 million. In comparison, ATI rival Nvidia has products that have closer ties to AMD's products. Nvidia is currently valued at about $6.3 billion and reported net income of $91 million in its most recent quarter report.