The Million Dollar Way (The Bakken Oil Blog): Semiconductors, Chips, AMD, XLNX, Apple, And All That Jazz -- November 9, 2021

Updates

Pre-market, November 9, 2021:

150 *1.7234 = $258.51
($258.51 - $208.01) / $208.01 = a 24.3% premium

Later, 6:30 a.m. CT: AMD still has a 23% premium to XLNX. No news on state of merger.

Original Post

Disclaimer: in a long note like this, there will be content and typographical errors. This is not an investment site. This page is for my own benefit to try to better understand the market. I would prefer this not be read by others, but if one reads it, don't quote me on it. Facts, factoids, opinions and observations are interspersed through the post, and it is difficult to separate fact from fiction. If this information is important to you, go to the source.

The semiconductor (chip) story, yesterday, Monday, was incredible. That was the most interesting sector Monday.

Nvidia is a story in itself. I don't have a dog in that fight, so, I will ignore it.

The story that I am most interested in is the acquisition of XLNX by AMD.

That deal was supposed to close by the end of the year (2021); it's been going through the regulatory process for more than a year, and it's been approved by all regulators but one: the Chinese. The Chinese may yet scuttle the deal.

XLNX paid a nice dividend prior to the acquisition announcement a year ago. XLNX quit paying a dividend at least a year ago.

Interestingly enough, apparently there was language in the proposed deal that allowed XLNX to re-instate the dividend if the deal did not close by November 8, 2021. That would cost XLNX $100 million; if the acquisition is approved by the Chinese after November 8, 2021, the acquirer, AMD, will lose $100 million simply due to "timing."

For more on this discussion, see the SeekingAlpha article here. That article was posted October 29, 2021, and the writer said it was probable, but not guaranteed that the Chinese would approve the deal by November 8, 2021, and prevent the dividend from being paid.

This is simply amazing, We get to follow this story in real time, and it's getting very, very interesting.

First of all, there was a major event by AMD yesterday (an accelerated data center and EPYC) and it was widely felt that XLNX would be there if the merger was on track. XLNX was not in attendance. That was a minor story compared to everything else but it may suggest that things are not going well with the Chinese.

Good time now to link:

arbitrage;
merger arbitrage;
trading halt (US law or Rule 48).

In this case, it's all about "merger arbitrage."

If the deal goes through, each XLNX shareholder will get 1.7234 shares of AMD.

AMD surged over 10%; gaining $13.82; closed at $150.16, and was up another dollar after hours, supposedly due to a "meta" deal with Meta (FB). But there may have been more to the story.

The SeekingAlpha article alludes to the merger arbitrage article, one individual suggesting if the deal was going to go through, the spread between AMD and XLNX would not be as wide as it is. The writer of the article suggested that the reason for the wide spread was simply because those engaged in arbitrage by buying XLNX were simply not able to keep up with how fast AMD was surging.

XLNX was up only 4.79% at the close, up $9.50; closing at $208, which suggests the writer of the article might have been correct. Or not. Maybe some folks are getting cold feet. If the deal does not go through, XLNX will fall back to its "fair value" of $150.

But look at this. Look at that spread. Right now, a XLNX share is worth $209. AMD is trading at $150.

If the deal goes through, each XLNX share will be worth 1.7234 x $150 = $259, let's call it $260.

$260 - $210 = $50

$50 / 210 = 24%.

A merger arbitrageur could have bought XLNX for $210 yesterday and, if the deal goes through, immediately flip / sell AMD and make a tidy 24% profit.

Nice.

I'll be watching for the exchange or the SEC to stop XLNX trading some time this week.

But XLNX went ex-dividend on November 5, 2021, and the 37 cents / share will be paid on November 15, 2021. Had something happened today, "they" might have been able to stop the dividend, but I think it's too late to stop that now.

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Semiconductor Companies

In the process of trying to sort out the AMD - XLNX deal this evening, I stumbled across something that was just as interesting.

At 5:52 p.m. last night, I posted:

Years and years ago, Apple, Inc., was a hardware / software company. Then somewhere along the line it morphed into a fashion company but, shortly after that, morphed into a mobile entertainment company. Now, Apple is a semiconductor company. See this post. Lots of hyperbole, of course, but some might get the point.

I clearly stated Apple was now a semiconductor company.

At Google Finance, looking for any story that might shed light on the AMD - XLNX deal, I checked out XLNX, and lo and behold, look what I found.

At Google Finance, the company in question is "compared" to other companies in the same sector.

At XLNX, Google Finance said to compare the latter with: