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AMD: A Takeover Target?

Summary

AMD holds a long term licence for the Intel x86 instruction set, a very desirable property.

Company represents an entree into server, notebook and desktop markets to compete with Intel.

Overview of main takeover candidates and the corporate logic behind their interest.

Advantages for AMD of being acquired.

A major attraction of Advanced Micro Devices Inc. (NYSE:AMD) for a possible acquirer is the long term licence it holds to use the Intel x86 instruction set. A larger cap company could use the acquisition of AMD to assault the de facto monopolies that Intel Corp. (NASDAQ:INTC) holds in server, notebook and desktop markets. Also the stock is near its cycle lows, presenting reduced risk.

Likely Acquirer An ARM Licensee Aspiring To x86

This logic evokes the possibility that Qualcomm Inc. (NASDAQ:QCOM), Broadcom Ltd. (NASDAQ:AVGO), and Oracle Corp. (NASDAQ:ORCL) may be prospective suitors. The most likely profile of any aspiring acquirer would be an ARM licensee seeking to develop into x86 processors. To establish the necessary financial perspective, Qualcomm has a market cap of $93.36 billion, Broadcom $68.47 billion, and Oracle $170.06 billion. By comparison, the market cap of AMD is just $5.97 billion.

However, any takeover attempt will in likelihood need to overcome a challenge from Intel seeking to block the acquisition and contest the transferability of the x86 licence. This is probable even though Intel were defeated by AMD in court on this issue relative to the GlobalFoundries spin off, and were required to pay AMD a $1.26 billion fine as a result.

The M&A legal team of a prospective acquirer will have done their due diligence on that issue prior to any bid being made, implying that the bidder believes it may be overcome. Any bid, of course, will represent a boon for shareholders if AMD's stock price spikes higher.

Intel May Have Acquisitive Intentions

Intel may itself be developing acquisitive intentions as a strategy to take over AMD would potentially produce a number of advantages. It would end the latent problem of the x86 licence being used as the basis to challenge its market dominance in server, notebook and desktop markets. It would also end the possibility that the licence would be transferred to an acquiring company with the cash to upgrade competition with Intel by an order of magnitude.

A further advantage would be that Intel by acquiring AMD would secure high performance GPU technology that can compete with NVIDIA Corp. (NASDAQ:a>


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