Oil state buys 8% of AMD
The investment arm of the government of Abu Dhabi bought an 8.1% stake in Advanced Micro Devices Inc. for more than $600 million, breathing financial life into the struggling chip maker as it battles Intel Corp.
The purchase made Mubadala Development Co. AMD’s third-largest shareholder.
AMD said Mubadala wouldn’t take a seat on the board or exert influence over its business. Mubadala is owned by the government of Abu Dhabi, one of seven states that make up the United Arab Emirates.
Sunnyvale, Calif.-based AMD had knocked Intel on its heels a couple of years ago with a flurry of products and price discounts but over the last 12 months has lost money and market share in computer microprocessors. AMD said in April that it would cut $500 million of the $2.5 billion it had budgeted for capital spending in 2007.
In the third quarter, AMD had $1.5 billion in cash on hand and a debt load of $5.3 billion, roughly the cost of its 2006 purchase of ATI Technologies. Its stock, which has lost 41% since last fall, closed Friday at $12.64, down 6 cents.
AMD said it would use the Mubadala money for research and development, manufacturing and “production innovation.”
Some analysts weren’t sure what to make of the deal. “I think there’s more here than meets the eye. I wouldn’t be surprised if this is the beginning of a relationship” with Abu Dhabi or the UAE, said Doug Freedman, senior analyst with American Technology Research. “It’s going to be challenging for us to handicap whether this is a right or wrong move.”
Oil-rich Persian Gulf states, including the UAE emirate of Dubai, have made headline-grabbing investments in the U.S. Mubadala recently paid $1.35 billion for 7.5% of private equity firm Carlyle Group, and the stock exchange owned by the Dubai government said in September that it would buy nearly 20% of the Nasdaq Stock Market.
In October, the Foreign Investment and National Security Act of 2007 became law, ensuring a high level of scrutiny of foreign investments in U.S. firms considered crucial to national security.
Mubadala’s stake in AMD shouldn’t worry Americans, said Alan Larson, a former U.S. undersecretary of State and a senior advisor at Covington & Burling, a Washington law firm that advised Mubadala in the deal.
“It doesn’t raise policy issues or come into the scope of the law concerning national security,” Larson said.
Because Mubadala isn’t taking a controlling stake, the deal won’t have to be approved by U.S. regulators, AMD said.
The company said it issued Mubadala 49 million AMD shares, valued at $12.70 each at the close of business Thursday, and received about $608 million after paying Mubadala $14.6 million in expenses.
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