AMD buying ATI for $5.4B, touts future micro/graphics integration

July 24, 2006 – Touting a vision of a silicon platform with integrated microprocessor and graphics processor capabilities, AMD and ATI Technologies Inc. have agreed to a $5.4 billion cash-and-stock deal to bring the graphics chip firm under AMD’s wing.

With the deal, AMD gains access to one of the two big graphics processor companies (the other being Nvidia), as well as a top supplier of chipsets for both AMD and Intel. “It’s a brilliant strategic move. AMD essentially have cornered the high-end graphics platform for themselves. Intel is getting squeezed out there,” said analyst Eric Ross of ThinkEquity Partners, quoted by Reuters. In a statement, AMD noted that the addition of ATI will improve the chipmaker’s position in the commercial market, as well as mobile computing, gaming, media, and emerging markets. The driver of this growth expansion, according to AMD, will be “silicon-specific platforms that integrate microprocessors and graphics processors” for applications needing multimedia, data-management, and heavy graphics processing capabilities.”

One immediate area of integration will be supporting the upcoming release of Microsoft’s new Vista operating system, due out later this year or early 2007. “Windows Vista will deliver incredible advances in the user experience as a result of advancements in graphics integration and performance,” stated Jim Allchin, co-president of Microsoft’s platforms and services division. “We’re excited by the potential of what AMD and ATI can deliver together to enhance the Windows Vista experience for our customers even further.”

Under terms of the acquisition, AMD will pay $4.2 billion in cash and 57 million shares of its common stock, translating into about a 24% premium over ATI’s closing stock price on Friday 7/21 — a premium that has already shrunk to just 6%, as ATI investors clamoring for an early foothold have driven up ATI’s stock price following the news. AMD said it will finance the cash portion of the transaction with a combination of cash and new debt, including a new $2.5 billion loan commitment from Morgan Stanley Senior Funding. In addition, ATI has agreed to a $162 million termination fee if the acquisition doesn’t go through.

AMD says the deal will be “slightly accretive to earnings” in 2007, and “meaningfully accretive” in 2008, before inclusion of acquisition-related charges. The chipmaker expects to reduce operating expenses by approximately $75 million for the combined company by the end of 2007. The two firms, which would have posted revenues of $7.3 billion in sales during the last four quarters, will maintain major business centers in Silicon Valley, Austin, TX, and Markham, Ontario. ATI president and CEO Dave Orton will join as EVP of the ATI business division, reporting to AMD chairman/CEO Hector Ruiz and president/COO Dirk Meyer.


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