AMD & ATI: The Acquisition from all Points of View

It has now been over a week since AMD dropped the bombshell that it would be seeking to acquire ATI in a massive $5.4 billion dollar deal to be closed sometime in Q4 of this year.  Regardless of each company's current position in the market, the AMD/ATI merger has the potential to completely re-write the face of competition and a number of markets we cover on a regular basis.  It's a tremendous gamble on AMD's part, especially considering that much of the deal is in borrowed cash.  Whether this deal ends up being the smartest move AMD ever made or the beginning of the end has yet to be seen, and honestly at this point it's far too early to predict what will come out of it should the acquisition go through. 

While predicting isn't our forte to begin with, what we can do is present you all sides of the story.  We'll take you through the perspectives of AMD and ATI as well as NVIDIA and Intel, and conclude with a bit of our own analysis on the entire situation.  We'll start off with a bit of background information on the acquisition:

• AMD plans on acquiring ATI for a total of $5.4 billion dollars in a mixture of cash and stock.  AMD will use $4.2 billion in cash ($1.7 billion currently on hand, and another $2.5 billion borrowed) and 57 million of its shares to pay for the deal.
• The deal will close in the next 100 - 120 days, finalizing it near the end of 2006.
• AMD isn't disclosing under what conditions it would walk away from the deal. 
• According to AMD's Hector Ruiz, AMD is partnering with ATI to develop "integrated silicon where it makes sense".
• AMD has no intention of blocking or prohibiting the sale of ATI products to anyone, but neither AMD nor ATI is counting on things like ATI Intel chipset sales continuing going forward. 
• Current ATI roadmaps over the next 6 months will remain unchanged.
• ATI's manufacturing arrangement (mainly ATI being a fabless manufacturer) will not change for the next 1 - 2 years.  The current production models will remain as-is. 
• AMD doesn't believe that NVIDIA will alter its relationship with AMD; NVIDIA believes the same. 
• Intel has not revoked ATI's bus license and has not made any public changes to its cross-licensing agreements currently in place with AMD and ATI. 

With the backdrop set, let's kick things off by looking at the merger from AMD's perspective.