Advanced Micro Devices to buy chip maker ATI for $5.4 billion

AP Technology Writer

SAN FRANCISCO - Advanced Micro Devices Inc. plans to pay $5.4 billion for top graphics chip maker ATI Technologies Inc., a bold move that could help the world's No. 2 maker of PC microprocessors match - or even exceed - the capabilities of larger rival Intel Corp.

The acquisition would instantly turn AMD into a leading supplier of graphics chips, which render images for computer games and Internet video, and so-called chipsets, which connect a PC's processor to other system components. Intel, which in the past year has lost ground in microprocessors to AMD but is showing renewed vigor, has long supplied both.

Shares of ATI rose 19 percent on the news, while AMD's stock fell almost 5


Markham, Ontario-based ATI, which also supplies semiconductors used in cell phones and high definition TVs, will also help AMD expand its reach into consumer products, executives said. Intel, which recently sold a division that makes chips for handheld devices, has been trying to break into those markets for years, with limited success.

Under terms approved unanimously by both companies' boards of directors, Sunnyvale, Calif.-based AMD will pay $4.2 billion in cash and 57 million shares of its own stock to acquire all of ATI's outstanding stock, the companies said on a conference call with


The deal, which is subject to approval by ATI shareholders and U.S. and Canadian regulators, should be completed by year's end, AMD executives said.

Based on AMD's closing share price of $18.21 on Friday, the deal valued ATI's shares at $20.47, a premium of almost 24 percent compared with ATI's Friday's closing price of $16.56 on the Nasdaq Stock Market. ATI shares surged $3.11 to close at $19.67 on the Nasdaq Stock Market. AMD shares fell 87 cents, or 4.8 percent, to finish at $17.39 on the New York Stock Exchange.