Xilinx And The AMD Merger
Seeking Alpha Analyst Since 2018
I am currently studying at Warwick University on a Digital Technology Solutions Degree Apprenticeship. I take an interest in stocks that produce long-term dividends and stocks with strong growth potential.
Summary
- Transaction set to complete by the end of this calendar year if China approves (which looks likely).
- Merger expected to be immediately accretive to AMD's earnings.
- Xilinx shareholders to receive 1.7234 shares of AMD stock per Xilinx share they own in a $35 billion all share acquisition.
Disclosure: These are just my opinions — I am not a financial advisor. Please speak to a financial advisor prior to investing or carry out your own, independent research from a variety of sources. Investing can result in losses.
Xilinx ($XLNX) is a company that is pending a merger with AMD ($AMD), a company that has experienced a significant turnaround and growth since its current CEO, Lisa Su, became CEO in 2014. The transaction, originally announced in 2020, is expected to be completed at the end of 2021 following approval from China’s regulatory bodies. Xilinx is the company that developed the FGPA, programmable SOCs and the ACAP. Its highly flexible programmable silicon helps drive rapid innovation across a wide range of industries — from cars to the cloud. The merger with AMD is expected to be accretive to AMD’s earnings and the $35 billion transaction will be executed in an all share deal where Xilinx shareholders will receive 1.7234 shares in AMD in exchange for 1 share of Xilinx. This has grabbed the attention of many risk arbitage traders who are trying to make a profit from the spread which was recently as high as $30 profit per share of Xilinx (compared with AMD’s stock price) when the transaction closes. This means that buying Xilinx stock is a more affordable way to buy AMD stock if you firmly believe the acquisition will successfully close. The main hurdle to the acqusition closing is China where it is the last major market needed to approve the deal. According to AMD’s CEO Lisa Su, China is likely to approve the deal by the end of December 2021. Recent indications on Seeking Alpha is indicating that there is progress being made in China approving the deal. So, if you are prepared to take an arbitage risk it might be worth buying Xilinx stock at a significant discount to AMD stock if you believe the acquisition will close. Remember, like all investing and trading this comes with risk.
There is a small chance this deal could fall through — like the recent NVIDIA-ARM deal but in my opinion this has a lower risk of falling through because most other regulators have approved the deal including, but not limited to, the United States, the UK and the European Union. This has not happened with the NVIDIA-ARM deal where the US FTC has sued to block the deal. It could send shockwaves through the investment community should China block the AMD-Xilinx merger — companies may become further reluctant to invest in China should this happen. Thus, I consider it unlikely China will block the deal and therefore I consider Xilinx to be a buy due to the spread. Of course do your own research before deciding as this is just my opinion!
Analyst's Disclosure: I/we have a beneficial long position in the shares of XLNX either through stock ownership, options, or other derivatives.
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