AMD - ATI Merger - Confirmed

AMD - ATI Merger - Confirmed AMD - ATI Merger - Confirmed

MegaGames has been reporting, for a few months now, on the imminent merger between AMD and ATI and on the reasoning behind it, i.e. the attempt to create Intel's nemesis. AMD has now confirmed the merger and explained the reasons behind it which could be summed up into a single word... Intel. We bring you the full AMD press release below:

AMD and ATI today announced plans to join forces in a transaction valued at approximately USD 5.4 billion. The combination will create a processing powerhouse by bringing AMD's technology leadership in microprocessors together with ATI's strengths in graphics, chipsets and consumer electronics. The result: A new and more formidable company, determined to drive growth, innovation and choice for its customers, particularly in the commercial and mobile computing segments and in the rapidly-growing consumer electronics market. Combining technologies, people, and complementary strengths, AMD plans to deliver in 2007 customer-centric platforms for the benefit of customers who want to collaborate in the development of differentiated solutions.

AMD's acquisition of ATI will position the new company to deliver innovations that fulfill the increasing demand for more integrated solutions in key market segments while also continuing to develop best-of-breed discrete products that empower customers to choose the combination of technologies that best serves their needs. In 2008 and beyond, AMD aims to move beyond current technological configurations to transform processing technologies, with silicon-specific platforms that integrate microprocessors and graphics processors to address the growing need for general-purpose, media-centric, data-centric and graphic-centric performance. Thus, the combined company intends to empower its customers to create their own unique products and solutions within an open-innovation ecosystem free from artificial barriers to customer success.

ATI shares our passion and complements our strengths: technology leadership and customer centric innovation, said AMD Chairman and CEO Hector Ruiz. Bringing these two great companies together will allow us to transcend what we have accomplished as individual businesses and reinvent our industry as the technology leader and partner of choice. We believe AMD and ATI will drive growth and innovation for the entire industry, enabling our partners to create differentiated solutions and empowering our customers to choose what is best for them.

This combination means accelerated growth for ATI, and broader horizons for our employees, said Dave Orton, President and CEO of ATI. All of our product lines will benefit. Joining with AMD will enable us to innovate aggressively on the PC platform, and continue to invest significantly in our consumer business to stay in front of our markets.

Under the terms of the transaction, AMD will acquire all of the outstanding common shares of ATI for a combination of USD 4.2 billion in cash and 57 million shares of AMD common stock, based on the number of shares of ATI common stock outstanding on July 21, 2006. All outstanding options and RSUs of ATI will be assumed. Based upon the closing price of AMD common stock on July 21, 2006 of USD 18.26 a share, the consideration for each outstanding share of ATI common stock would be USD 20.47, comprised of USD 16.40 of cash and 0.2229 shares of AMD common stock.

AMD anticipates it will finance the cash portion of the transaction with a combination of cash and new debt. AMD has obtained a USD 2.5 billion term loan commitment from Morgan Stanley Senior Funding, Inc. which, together with combined existing cash, cash equivalents, and short term investments balances of approximately USD 3.0 billion, provides full funding for the transaction.

ATI has received an opinion from its financial advisors that the transaction from a financial point of view is fair to its shareholders. The transaction was unanimously approved by the board of directors of each company. The transaction is subject to ATI shareholder approval, Canadian court supervision of a Plan of Arrangement, and other regulatory approvals including merger notification filings in the United States, Canada and other jurisdictions, as well as customary closing conditions. In the event that the transaction does not close, ATI has agreed to pay AMD a termination fee of USD 162.0 million under circumstances specified in the acquisition agreement. The transaction is expected to be completed in the fourth quarter of 2006.

A Compelling Financial Opportunity
AMD expects that the transaction will be slightly accretive to earnings in 2007, and meaningfully accretive in 2008, before the inclusion of ATI acquisition-related charges, based upon AMD's plans to deliver more integrated and advanced platform solutions and thereby improve its position in commercial clients, mobile computing, gaming, media and emerging markets. AMD anticipates that it will reduce operating expenses by approximately USD 75 million for the combined company by the end of 2007.

The combined company would have achieved approximately USD 7.3 billion in total consolidated sales during the last four quarters with a workforce of approximately 15,000 employees. Headquartered in Sunnyvale, California, the company will maintain sales, design and manufacturing centers worldwide and major business centers in Silicon Valley, Austin, Texas and Markham, Ontario - all valued centers of innovation for the combined company. AMD's current executive team will be complemented by the addition of ATI President and CEO Dave Orton. Orton will serve as an executive vice president of the ATI business division, reporting to the AMD Office of the CEO, comprised of Chairman and CEO Hector Ruiz and President and Chief Operating Officer Dirk Meyer. In addition, under the terms of the acquisition agreement, two ATI directors will join AMD's board of directors upon closing of the transaction.

As we reported a few months ago, AMD is involved in negotiations to buy ATI and the Canadian graphics firm will cost around USD 5.5 billion while an announcement may come as early as next week. AMD has also announced plans to demonstrate its native quad-core in 2006.

An insider involved in the AMD/ATI negotiations is claiming that the talks are well under way and we may get an announcement in the next few days. These latest developments have also shed some lght onto the reasons behind an ATI buyout by AMD and they, mainly, involve Intel. AMD is fashioning itself as the alternative to Intel and in order to fully compete it has to be able to offer everything its rival can, that includes graphics parts, a market led by Intel, in sales. Buying ATI would seem the reasonable solution, while packaging ATI graphics boards and AMD processors will offer additional marketing options.

AMD also responded to recent Intel comments claiming that its quad-core designs will be available before the end of 2006. During AMD's Q2'06 earnings conference call, the company President and Chief Operating Officer Dirk Meyer, stated that AMD plans to ...demonstrate our next-generation processor core, in a native quad-core implementation before the end of the year. The quad-core product, codenamed K8L, will not be available in 2006 however since Mr. Meyer made it clear that native quad-core processors will not launch until mid-2007. It is not clear however, if non-native quad-core products will appear before then or not at all.

AMD has its hands full now as Intel is clearly upping the stakes in the processor market, the delay in having quad-core chips available may damage the company's market share at a time when Intel is already riding a revitalized popularity wave created by its Core 2 Duo range of chips.