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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."
TFA does not talk about a buyout for technology reasons. No, IBM does not want to compete with Intel on the x86 market. This is about a private equity firm (aka a group with a lot of money) possibly trying to buy a large part of AMD. It's all about money, not tech.
Why would they do this? They either believe that AMDs stock is undervalued (it slipped 12% since January due to $574 million forth quarter loss) or they expect the company to fare pretty good in the future. Any way, they'd make money. A third option is always someone believing the single parts of the company are worth more than the stock and breaking it up and selling them separately will be profitable, but AMD is not sufficiently diversified to make this likely.
So what would happen if the rumors were true? Someone else would receive the bonus in the future.
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You have to be kidding, IBM a prospective buyer? How on earth does that make sense? Why would IBM want to be in the Intel clone business? Do they need the extra fab capacity, no? Is there some IP that they might be after, highly doubtful that there is enough to warrant a purchase vs simply licensing it. AAMOF, I don't see any value that AMD could bring to the company compared to the rather large price they would have to pay to get it. IBM is just fine selling gazillions of PPC based chips to video game manufacturers and doing their other custom IC work.
Now someone will tell me that all the great movers & shakers in Wall Street are signed up to the same Yahoogroups list. Excuse me if I don't believe that. Is this idle speculation masquerading as news?
freakin' preposterous.
yahoo stock boards are full of stock pimps and shenanigans, as well as cranky posters and politics junkies.
I'd rather get stock touts from a street drunk than that board. you could probably do better pumping and dumping penny stocks mentioned in spam than using yahoo as your guide.
everybody, repeat after me. "Tech stocks are NOT bubble plays, they are lead balloons. there is ONE tech stock in a thousand that is a money rocket, the rest just plink along as no-brain speculators play with them."
trade if you must on the fundamentals, not on cool technology. cool technology lasts half a year, then it's trumped, and it costs 50 times as much to find the next breakthrough as the first one.
if this is supposed to be a new economy, how come they still want my old fashioned money?
Although in the past private equity firms have generally sought to buy firms with undervalued stocks, with the massive amount of money floating around today pe firms usually buy companies and extract value for themselves by leveraging the company (hence the term leveraged buyout).
In this case, that would be a terrible idea. AMD's debt load is such that a firm would be unable to raise it significantly, but most importantly, AMD competes in a cyclical industry. Many are worried about the recent Freescale LBO because in a highly cyclical industry like semiconductors if the industry turns down and the leveraged firm can't make its debt payments, then it goes belly up.
Considering all of these factors I think that an LBO of AMD is highly unlikely.
That's the basis for this? Speculation on a msg board?
Might as well read the National Inquirer...
We know from the last few years experience that AMD can, for limited periods of time, pull ahead of Intel. That initially surprised a bunch of people whose conventional wisdom was that AMD would always merely follow, and its stock doubled. Then Intel pulled ahead again, and AMD's stock fell all the back and some. But before that reversal, AMD (1) gained significant market entry (e.g. Dell) so that in the event it pulls ahead of Intel again, it can more immediately capitalize on that lead, (2) bought a major graphics chip maker, which can potentially give it more ways to pull ahead. But that was expensive, so:
At this point AMD might want to take on a significant minority investor from private equity. That would ease its short-term debt. From the investor's point of view, all that is necessary to make a huge profit is for AMD to pull ahead of Intel again - however briefly - which could easily double the value of AMD's stock again. But the greater upside is if AMD can innovate its way to a longer-term lead over Intel. If that were to happen AMD's value could increase by an order of magnitude.
Also, if you're private equity, you probably feel you're smarter than God, so that if AMD were compelled by your investment to listen carefully to your strategic ideas, the upside potentials would become much better bets.
Of course, there's a substantial chance of losing it all too. But over the last 40 years the GDP per capita in the US has doubled, while the median income per capita has held within a few percent of steady. That basically means that the there's twice the wealth - more than that considering population growth, but twice as much for each person on average. But each person doesn't have that. It's the super rich who have it, and they're the players in the private equity game. They can afford to gamble big, because they have so much they can take huge losses on any particular bet and still come out far ahead of the rest of us.
"with their freedom lost all virtue lose" - Milton