AMD MAY MAKE A BUYOUT OFFER FOR SEMICONDUCTOR COMPANY XILINX — IS THERE AN OPPORTUNITY FOR STOCK MARKET INVESTORS?

There are rumors that AMD (AMD) will buy Xilinx (XLNX).

For AMD it makes sense for the following reasons:

• AMD is primarily in FPGA business.
• XLNX competes with Intel’s (INTC) FPGA business.
• Long time subscribers may recall that INTC bought ALTR.  At that time ALTR was the prime competitor of XLNX.
• AMD competes with INTC.
• It is logical for AMD to want to buy XLNX.
• AMD has low margins.
• XLNX will likely be accretive.

Will XLNX Turn Down The Offer?

• The stock has jumped in the premarket and is trading at $123.66 as of this writing.
• The reported offer may be around $125.
• Reportedly, several years ago, XLNX turned down an offer from QCOM.
• An offer in the zone of $135 to $140 will likely get the deal done.
• An offer is likely to be an all-stock or mostly stock offer.
• In a rational market, if AMD were to offer $140, AMD stock should be crushed thus reducing the value of the offer.
• Keep in mind that this is not a rational market.
• AMD is a favorite of the momo crowd. AMD has gotten far ahead of INTC by innovating new designs. However, AMD stock is divorced from a reasonable valuation.
• The momo crowd does not care about any analysis or valuation.  For this reason, a higher offer and AMD not getting crushed will be in line with what is happening in this stock market.
• AMD becomes a ‘buy’ if the stock pulls back significantly.  One way to get into AMD may turn out to be buying XLNX and then keeping AMD stock in a buyout offer.  However, there are no guarantees how this plays out.

What To Do Now

Those in XLNX stock may consider continuing to hold.  Those who hedge would be holding a partial quantity.

Those not in XLNX stock, are aggressive and understand the risks and rewards as outlined above, may consider taking a position in XLNX in the zone of $116 to $124.50.   The maximum recommended position size is 35% of full core position size but consider reducing it based on your own risk preference.  Know that if there is no deal, the stock can gap down and stops will not protect you.   The stop zone is $113 to $114.38.  (For targets see above.)

Any updates will be in ZYX Buy Change Alert.

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