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Updated from July 23

Seeking to bolster its chip arsenal against rival


(INTC) - Get Intel Corporation Report


Advanced Micro Devices

(AMD) - Get Advanced Micro Devices, Inc. Report

agreed to pay about $5.4 billion to acquire

ATI Technologies

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AMD will acquire all of the outstanding common shares of ATI for a combination of $4.2 billion in cash and 57 million shares of AMD common stock, based on the number of shares of ATI common stock outstanding on July 21, 2006. All outstanding options and restricted share units, or RSUs, of ATI will be assumed.

The deal represents a 29% premium to shareholders of Markham, Ontario-based ATI. Shares of ATI surged 17% Monday, while AMD sank 7% to a 52-week low.

"ATI shares our passion and complements our strengths: technology leadership and customer centric innovation," said AMD chief Hector Ruiz. "Bringing these two great companies together will allow us to transcend what we have accomplished as individual businesses and reinvent our industry as the technology leader and partner of choice. We believe AMD and ATI will drive growth and innovation for the entire industry, enabling our partners to create differentiated solutions and empowering our customers to choose what is best for them."

"This combination means accelerated growth for ATI, and broader horizons for our employees," said ATI chief Dave Orton. "All of our product lines will benefit. Joining with AMD will enable us to innovate aggressively on the PC platform, and continue to invest significantly in our consumer business to stay in front of our markets."

ATI is best known for chips that handle PC graphics, but it also makes chip sets, which get data from a PC's memory and sometimes include graphics, the report noted. By purchasing ATI, AMD likely would be able to better compete with Intel, which makes chip sets and bundles them together with microprocessors.

Shares of AMD lost $3.39 to close Friday at $18.26 after the chipmaker

reported depressed sales on Thursday.