Patient Capital for AMD to Come from Abu Dhabi Via Mubadala

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The relationships between the UAE’s government, royal family, and their investment properties, like Mubadala and ATIC, have a major impact on how they approach The Foundry Company project. While the stock and credit markets insist on strong performance one quarter after another, people with almost 10% of the world’s oil in their pocket can ride things out through much rougher, longer rides.

Plus, while the royal family in part shares the motivation of any private investor, they also have the outlook of a government. A state can spend a fortune building a bridge that is expected to last a hundred years, while private investors would balk at the time frame. Abu Dhabi can hang on to assets for decades not only because of its wealth, but to hold out for a potential benefit to its citizenry, even several generations down the road.

The Foundry Company is of interest to Abu Dhabi not only as an investment, but a possible source of technological manufacturing infrastructure and employment. A TFC press release clearly states: “After the upgrade and expansion in Dresden and the build-out of the New York facility, The Foundry Company envisions expanding its global manufacturing footprint over time, if commercially justified, to also include new fabrication facilities in Abu Dhabi.”

Mubadala Development Company

This huge (exactly how huge isn’t public) company owns all kinds of stuff on behalf of the UAE’s ruling royal family (we talked about them briefly, along with why AMD would want to sell off their fabs, in the previous article). This includes everything from 5% of Ferrari to 7.5% of US investment firm the Carlyle Group, and multi-billion dollar ventures with GE, Rolls Royce, and others.

Mubadala already owned 8.1% of AMD, and with AMD at the end of its ability to pay for new fabrication while competing with Intel, Mubadala is coming back for more. The deal proposed in October saw 314 million USD going to AMD to more than double MDC’s stake to over 19%, along with the right to appoint a representative to AMD’s board.

This was revised in an amendment December 8th: Mubadala will end up with about the same portion of AMD, but they will pay less for it. Specifically, they will pay the average closing price for the 20 trading days leading up to the 12th or the 20 trading days before the deal closes, whichever is lower. For reference, the average of the 20 trading days ending today puts AMD at $2.22 per share, which would get them just under 130 million.

Of course, that it is a very small amount relative to the total value of the deal. Most of the money is still coming from Abu Dhabi, but via a relatively new body, ATIC.

The Advanced Technology Investment Company

Apparently, ATIC was developed, at least for the time being, exclusively to handle Abu Dhabi’s interest in The Foundry Company (which I shorten to TFC), though their mission statement indicates they may be looking at other opportunities as well. Furthermore, for the 12-months following the deal’s closing, Mubadala will help ATIC look after their TFC investment. They will pay $2.1 billion, $1.4 billion to TFC for their shares, and $700 million to AMD, which AMD will give to TFC for its shares. These numbers haven’t changed since the October 8-K filling with the Securities Exchange Commission, but what ATIC gets in return has. The December 8th amendment mentioned above also changed the value accorded to the assets AMD is giving TFC, so the original 44.4/55.6 AMD/ATIC split is now 34.2/65.8.

Those numbers represent economic ownership, the voting shares will be split down the middle, and the board of eight will have four appointees from AMD and four from ATIC. Also, TFC will be taking 1.2 billion of AMD’s debt with it. Furthermore, ATIC has committed from $3.6 to $6 billion for immediate expansion of AMD’s (which will then be TFC’s) Dresden facility and a new facility in the New York capitol region.

Even then it may look like AMD is taking a beating, but it is like the clause you have to back out of an offer on a house if there is a major change before closing. Plus, AMD needs the money more than they did two months ago, even if it is less money. And they secure access to fabrication capacity they never could have afforded on their own.

Having dealt with AMD, Mubadala, and ATIC in this and the previous articles, in the next we turn our attention to the business they hope to create, The Foundry Company.

This post is part of the series: AMD Creates a Subsidiary for It’s Manufacturing Operations: Will this Create Better CPUs and Create American Jobs?

Can money from Abu Dhabi help AMD stay competitive with Intel past 2009 and provide opportunities in the beleaguered US manufacturing sector?

  1. AMD Might Claw Back some Desktop Market Share in 2009
  2. Intel vs AMD: 2010 Could Be a Slow Year for AMD Processors
  3. What Is Driving the AMD Foundry Spin-Off?
  4. Challenges to AMD’s Vertical Integration Make Foundry Spin-Off Attractive
  5. AMD Fabrication Spin-Off: The Big Players
  6. Money for AMD Comes from Mubadala and ATIC
  7. What We Know about The Foundry Company: the Working Title for the AMD Fab Spin-Off