Congratulations! Xilinx (XLNX) has become the 158th Arora Report portfolio company to be bought out. Long time subscribers to The Arora Report have made a fortune by the Arora Report’s propensity to identify companies that get bought out. We previously wrote:
An offer in the zone of $135 to $140 will likely get the deal done.
AMD (AMD) and XLNX are semiconductor companies. Interestingly the 157th Arora Report portfolio company to be bought out was also a semiconductor company— Maxim Integrated (MXIM) was bought out by Analog Devices (ADI).
The notional value is approximately $143. per share for each XLNX common stock. Each XLNX share will be exchanged for 1.7234 shares of AMD stock.
The transaction is structured to qualify as a tax-free transaction for U. S. tax purposes.
AMD expects $300 million of cost savings within 18 months of closing.
Competing With Intel
AMD is competing with Intel (INTC).
The main competitor of XLNX in FPGA was ALTR. ALTR was acquired by Intel.
Here are the risks that investors need to consider.
- The transaction will need government approval in a number of countries.
- On the surface, there should be no issue in getting the approvals. However, sometimes such approvals become political issues. If they become a political issue, then there is a risk of closing the deal.
- The deal is scheduled to close by the end of the calendar year 2021.
- Due to the long delay before the deal closes, there will be a lot of volatility in these two stocks.
- As much as we like AMD for its designs and direction, AMD stock is divorced from a reasonable valuation.
- Right now valuation does not matter because AMD stock is one of the favorites of the momo crowd. The momo crowd does not care about valuations. However, there is no guarantee that the momo crowd will stay in control of the stock market for another year.
- Semiconductors are the lifeblood of the new economy. The Arora Report portfolio is overweight in several semiconductor stocks. Having said that, semiconductor stocks are also overvalued at this time because of the dominance of the momo crowd. If the sector corrects, AMD stock has significant downside risk.
XLNX is trading at $134.44 as of this writing in the premarket. The reason for the discount from the $143 stated value of the deal is the risks stated above.
What To Do Now
Those in XLNX stock, are aggressive, understand the risks, and are long term oriented may consider continuing to hold.
Those in the stock and do not want to take additional risks may consider scaling out in the zone of $133 to $141.
Those who are short term oriented may consider scaling out.
This post was just published on ZYX Buy Change Alert.
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