AMD Acquires Arabic Affluence

AMD (NYSE: AMD) just hauled in $614 million in fresh cash, and the new investor isn't any of the usual suspects.

It's no secret that AMD needs some financial help these days. The ongoing -- albeit lightening -- price war with Intel (Nasdaq: INTC) in just about every segment of the microprocessor market has kept the underdog's net results and cash flows in the red for several quarters now, forcing the company to push back critical factory upgrades by a few months.

The story so far
Back in April, AMD took on $2 billion in new debt to keep the party going. Morgan Stanley (NYSE: MS) organized that round of convertible senior notes, Wells Fargo (NYSE: WFC) took on part of the deal as collateral agent, and a bunch of large investment banks probably bought most of the debt instruments. That was a nice start, but apparently not enough.

So now, the Mubadala Group has bought 49 million freshly minted shares directly from AMD, at last night's closing price of $12.70 per share. After transaction fees and such, that translates into an 8.1% ownership stake in the processor pasha and 8.9% overnight dilution. It would have taken about two days to fill an order this size at AMD's average trading volumes, and a single-shot order would certainly have driven up the price quite a bit. Morgan Stanley advised both parties on the deal but didn't actually buy or sell anything; Merrill Lynch (NYSE: MER) was AMD's main advisor, and Lehman Brothers (NYSE: LEH) played that part for the Arabic investors. But the sale went to Abu Dhabi alone, and none of the advisors took any ownership in AMD or in Mubadala.

But the shares didn't lose value in proportion to the dilution -- in fact, the price right now is about the same as last night's closing level. In other words, your average investor seems to think that the new cash was worth the share count pain. No more, no less.

Who are these guys?
If you're saying "Mubu ... Mama ... Who?" you certainly aren't alone. It's an investment firm based in Abu Dhabi, United Arab Emirates, and wholly owned by that government. Mubadala's highest-profile investments in the West so far have been a 5% stake in Italian sports car designer Ferrari and a 7.5% claim in private American investment group Carlyle. But as far as I can tell, this is the first time Mubadala has bought into a publicly traded Western company.

The UAE involvement stops with a substantial shareholder stake, though -- no board seats or advisory relationships included. Mubadala CEO Khaldoon Khalifa Al Mubarak called AMD "a spirited competitor and innovator led by a strong and visionary management team. We see significant opportunities for long-term growth and value creation." And the warm fuzzies were mutual, as AMD CEO Hector Ruiz called the newcomer "a world-class investor" and pledged the cash to improving "R&D, product innovations and manufacturing excellence."

Carlyle said that Mubadala was "among the most sophisticated investors in the world." Northrop Grumman (NYSE: NOC) recently landed a large aerospace and aviation training and development deal with the investor. Grumman's management "understands [Mubadala's] vision to encourage, strengthen and develop the future economy of Abu Dhabi and its future business leaders through profitable, strategic, commercial and industrial global investments and partnerships."

Daddy, I'm scared!
Should investors worry about the Arabian finger in AMD's pie? Judging by the caliber of the other well-known partners, perhaps we shouldn't. I'm not very familiar with Mubadala's social responsibility track record, but it feels pretty good to have them take just a minority stake without direct influence on the company's strategy, leadership, or direction. So for now, I'll welcome the new money and hope that it helps put 45nm development back on track. But my portfolio is sleeping with one eye open until further notice.

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