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AMD A Ripe Target For Buyout?
SpiceMonkey writes "AMD stock was up 6.74% on Monday on rumors that AMD is a prime buyout target. After their purchase of ATI, they've been pressed to maintain their aggressive policy of chip production increases. As a result, the AMD message board on Yahoo! is full of speculation on who has their eyes on the company. Many folks there think that IBM is the right buyer for the company. There's no firm word that AMD is even being considered for purchase, but it's certainly and interesting prospect."
http://money.cnn.com/2006/01/05/news/companies/pr
The article is from Reuters, and is presumably talking about Wall Street chatter. The Yahoo message board activity seems to be secondary to the article. It is interesting that people think people with enough money(and rapid enough access to information) to 'trade' would waste their time on Yahoo message boards.
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A private equity firm is unlikely to be interested in AMD. Private equity investors tend to focus on consistantly profitable companies in declining sectors, e.g. the recent buyout of a utility in Texas is a case in point. Utilities have a predictable revenue stream, and don't have fast-growing revenues. The profits are necessary because private equity investors don't have money: they are leveraged (i.e. are in debt), and use the profits to both finance the leverage and secure a return for their investors. The declining sector is important because it means the share price will be low.
AMD has two things against it: it doesn't have predictable profits (game plan since the 90's: it releases a new product, is profitable, takes market share from Intel, Intel strikes back, AMD has losses) and it is in a sector which isn't necessarily in long-term decline (though things have been rough since the tech bust).
If there is a buyer, I'd bet it'll be either another semiconductor company, or at least one with a signficant semiconductor interest.
The article that describes the unusual movement in the market and the possibility of a buyout is from Reuters, so it can be considered valid. Only the idiotic discussion about IBM buying AMD is from Yahoo.
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Actually, railroads, at least in North America, are quite successful these days. Profits are up, track utilization is very high, and the industry is quite strong. They're pulling business from long-haul trucks, and moving containers by the thousands. Their biggest risk now is becoming victims of their own success, since they can't build enough new track to ease already overburdened lines (every time they try, environmentalist groups try to stop them).
Toys R Us, Hertz, Sungard, Neiman Marcus, Intelsat, Equity Office, Hospital Corp of America, Harrah's, Clear Channel, Freescale, Albertson's...and those are just the LBOs. Saying private equity "tends to focus on consistantly profitable companies in declining sectors" is just wrong. Look at Wilbur Ross - he exclusively buys turnaround prospects and everything he buys is losing money. Sungard, Neiman Marcus, Harrah's, etc. are not in declining sectors.
I don't disagree with your basic analysis for LBOs...but not all PE is an LBO. There is a substantial buy-and-hold group of PE investors (where "hold" is 5+ years...hey, this is Wall Street, what do you expect).
Private equity is not all that different than regular (as in stock market) equity...it's just, well, private. The current issue of Fortune has an excellent, extensive story on private equity today.
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