AMD Stock Sees Steep Drop Ahead of Xilinx Acquisition

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Advanced Micro Devices stock has come under

severe selling pressure just ahead of the completion of its long-pending acquisition of chip maker

Xilinx
,
expected Monday.

Advanced Micro (ticker: AMD) shares tumbled 10% on Friday to $113.18, extending the stock’s two-day decline to more than 15%.

While the decline partly reflects the broad market selloff and continued crumbling of tech shares, it would also appear that the all-stock nature of the deal is creating added selling pressure. Xilinx shares, trading in lockstep with AMD, also fell 10% on Friday. This was the worst one-day drop for AMD shares since March 2020, and the biggest two-day decline since October 2018.

Terms of the deal call for Xilinx (XLNX) holders to receive 1.7234 AMD shares for each share of Xilinx they hold. As of Jan. 14, Xilinx had 248.4 million shares outstanding, which implies that those shareholders will receive 428.1 million new AMD shares in the transaction. Before the transaction, there were 1.2 billion AMD shares outstanding. Former Xilinx holders therefore will own about 26% of the combined company, assuming they stick around.

The question is whether Xilinx shareholders will keep their AMD shares or sell them off. In some cases, the shares will almost certainly be sold. For instance, Like AMD, Xilinx is also a component of the

S&P 500
; index funds aren’t likely to keep their extra AMD shares.

In a research note Friday, Wells Fargo chip analyst Aaron Rakers tweaked his financial model for AMD to reflect the deal. For calendar 2022, he boosted his estimate on expected revenue to $25.4 billion from $21.5 billion, but he trimmed his per-share earnings forecast slightly to $3.96 a share from $4.02. He sees growth of 13.5% for the blended company on average through 2024, reflecting 15% in projected growth for core AMD, and 7% growth for Xilinx. 

Write to Eric J. Savitz at [email protected]