AMD andXilinx

The convention being challenged

Press coverage and published comparisons of deal values usually report the figure in the announcement. AMD's own release gave one, and Xilinx shareholders were told they would receive about $143 a share, based on the average of AMD's price over the ten trading days through 8 October 2020 (joint press release). The convention is reasonable for a cash deal, where the figure is what changes hands.

What all-stock means

No cash left AMD. The release set a fixed ratio of 1.7234 AMD shares for each Xilinx share, and the completion announcement repeats that the ratio was unchanged (AMD completion release). Xilinx shareholders did not exit. They became owners of the combined company and continue to bear its results. The release stated that, on a fully diluted basis, AMD stockholders would own about 74 percent and Xilinx stockholders about 26 percent.

That is the price, in the sense that matters to each side. AMD agreed to give up 26 percent of itself. Xilinx's owners agreed to take 26 percent of a larger company. What each portion was worth in dollars depended on AMD's share price, which moved.

Why the dollar value moved

The ratio was set in October 2020 and the share price was not. AMD's stock rose between announcement and completion in February 2022, and the value of the consideration rose with it, to a figure reported near $49 billion. The completion release itself gives the ratio and no dollar value, which is consistent with the point that the ratio is the term and the dollar figure is a snapshot.

A hypothetical shows how the snapshot misleads. If AMD's stock had fallen by half instead, the same deal would have been reported as a $17 billion purchase, and nothing about what AMD gave or Xilinx received in ownership would have changed.

The business acquired

Xilinx made field programmable gate arrays, chips whose logic can be reconfigured after manufacture. They are slower and costlier per unit of work than a chip designed for one purpose, and they suit applications where the task changes or the volume does not justify a custom design. Telecommunications equipment was the largest market. Victor Peng, Xilinx's chief executive, said that “together, we will lead the new era of high performance and adaptive computing.” AMD has since reported the business within its embedded segment and does not break out its contribution to AI revenue in a way that settles any claim about it.

The strongest objection

The objection is that the announced value was a fair description at the time it was made, and that a deal agreed at $35 billion was a $35 billion deal. For the purpose of recording what the market valued, that is correct.

It is incomplete for any purpose that compares one transaction with another or asks what a buyer paid. The test is whether the comparison changes when the buyer's share price changes. If it does, the dollar figure was not a price.

What a reader should take from it

For an all-stock deal, look at the exchange ratio and the ownership split first, then at the value on the signing date and on the closing date. A sector comparison that mixes cash deals and stock deals at announcement values is mixing two different measures.