Of the parts of AMD’s agreement to use Intel’s x86 architecture (and Intel’s use of AMD’s x86-64) that aren’t blacked out, we find an indication that if AMD were to increase its assets or market value by one third, Intel can claim AMD is undergoing a change of control. First the assets.
AMD Assets Before and After Asset Lite
AMD’s assets, as of September 27th, are $9.49 billion. Their assets after the transaction will be:
(i) Ending Assets = original assets – assets going to TFC + cash from Mubadala + (AMD’s economic ownership X TFC’s assets)
The original announcement (October 7th) quoted a $2.4 billion value for the assets going to TFC from AMD using a 1.13 multiplier, so reversing the multiplier gives us their value on AMD’s books
2.4 billion / 1.13 = 2.1 billion
TFC is also getting 2.1 billion in cash from ATIC. That $700 million of that money will go from ATIC to AMD to TFC doesn’t affect these calculations, we’re only worried about the value of TFC for now. The December 4th amendment states AMD’s economic stake in TFC will be 34.2%.
0.342 X (2.1 billion + 2.1 billion) = 1.44 billion = 0.342 X (2.1 billion + 700 million + 1.4 billion)
AMD was originally going to get $314 million from Mubadala, but will get substantially less since the deal was amended December 4th. Since we are worried about how big AMD will be after the transaction, let’s be safe and use $314 million instead of the actual number, which is likely going to be no more than $125 million, and could be quite a bit less than that depending on what AMD shares do before the transaction closes. So substituting into (i) we get
9.49 billion – 2.1 billion + $314 million + 1.44 billion = 9.14 billion
Thusly, AMD’s assets after the sale will be
Only 96.31% of their assets before Asset Lite; they will have less asset value then before TFC, let alone one third more.
They Avoid that Legal Hurdle, But the Deal Will Make AMD Worse Off?
And why would they offer 50% of the assets and accept 34.2% of the economic ownership? Remember that we were just looking at assets because we wanted to see if AMD could be considered as undergoing a change of control under Section 6.2.b.7 of their x86 license with Intel.
Here, and in the following article, we only look at specific elements of the deal as they affect AMD’s size, because that could allow Intel to argue a change of control and cut AMD off. This series explained why AMD needs to do something drastic quickly, and how they stand to benefit overall.
So By Assets, AMD Isn’t Breaking the One-Third Rule?
From what we can see (remember, the x86 license has many blacked out areas, we made many assumptions, used numbers that were probably developed with lots of assumptions, and we’re not lawyers) not by assets.
The one-third rule can be measured not just on assets, but also by market value, however. Our next article looks at two methods of calculating market value.
This post is part of the series: CFIUS, ESD, and Possibly Even Intel Have a Say in AMD Spinning Off Its Manufacturing Business
With numerous approvals needed from investors and regulators, and possible legal issues tied to the x86/x86-64 cross-license agreement with Intel, AMD’s spin-off plans to create The Foundry Company need more than a rubber stamp. Who is for it, who doesn’t mind, about whom we aren’t sure, and why?
- AMD Shareholders and Others Likely to Approve of Plans for The Foundry Company
- Will AMD’s Plans for The Foundry Company Touch Off a New Legal Battle with Intel?
- Will Intel Say AMD’s Asset Lite Plan Represents a Change of Control?
- Could an Increase in AMD’s Market Value Because of their Asset Lite Transactions Threaten their x86 Agreement with Intel?
- The Foundry Company as an AMD Subsidiary Would Receive Intel x86 License Access
- Intel Unlikely to Pose Legal Threat to AMD’s Spin-Off Plans for The Foundry Company