Xilinx Inc. (XLNX) - Get Xilinx, Inc. (XLNX) Report shares surged the most in nearly a year Friday following a report from the Wall Street Journal that the San Jose-based tech group could be bought by its chipmaking rival Advanced Micro Devices. (AMD) - Get Advanced Micro Devices, Inc. Report.
The Journal said the pair were in advanced merger talks that could value Xilinx at more than $30 billion, a 16% premium to the group's closing price on Wall Street last night. Xilinx's data-center chips have become much more valuable since the coronavirus pandemic triggered a surge in work-from-home dynamics that have pressured companies around the world to improve their technology and storage capabilities.
AMD, meanwhile, has seen its share price rise nearly 90% so far this year, taking its market value past $100 billion, a move that gives the chipmaker substantial firepower -- despite a small net cash position of just $1.1 billion -- to absorb Xilinx in an all-stock deal.
"We believe Xilinx would be a good, high-quality target, providing AMD with another strong competitive product set against its archrival, Intel," said KeyBanc Capital Markets analysts Weston Twigg and John Vinh. "Xilinx has substantially higher gross margins and operating margins, and the deal would likely be accretive for AMD, though the final price will be needed to calculate share dilution and EPS impact."
"As for deal approval, trade war tensions add substantial risk; we think the deal could be approved, but it would likely take at least 1.5 years," the pair added.
Xilinx shares were marked 13.2% higher in early trading Friday, the biggest move since October 2019, to change hands at $120.12 each. AMD shares were marked 2% lower at $84.73 each.
TheStreet's founder, Jim Cramer, said on CNBC that he wonders if Xilinx might be a reluctant seller, given that it feels it's on a 'launch pad' to growth, and wondered if AMD CEO Lisa Su would be concerned about overpaying for a company that might not fit into the company's core areas.