AMD to acquire graphics chip giant ATI

The combined company "will create a processing powerhouse by bringing AMD's technology leadership in microprocessors together with ATI's strengths in graphics, chipsets and consumer electronics," the two companies said in a statement.

AMD, the world's second largest chip makrer, is hoping the acquisition will leverage its position within the microchip industry, allowing it to expand beyond computational processors for PC systems as it strives to tear additional market share away from world leader Intel Corp.

By 2008, AMD said it plans to move beyond current technological configurations to transform processing technologies, with silicon-specific platforms that integrate microprocessors and graphics processors to address the growing need for general-purpose, media-centric, data-centric and graphic-centric performance.

"ATI shares our passion and complements our strengths: technology leadership and customer centric innovation," said AMD Chairman and CEO 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."

Under the terms of the transaction, unanimously approved by both companies' board of directors, 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.

Based upon the closing price of AMD common stock on July 21, 2006 of $18.26 a share, the consideration for each outstanding share of ATI common stock would be $20.47, comprised of $16.40 of cash and 0.2229 shares of AMD common stock.

The Sunnyvale, Calif.-based AMD said it plans to finance the

cash portion of the transaction with the help of a $2.5B loan from Morgan Stanley.

Graphics processors from ATI have been used in personal computer systems from Apple Computer throughout the years. Although Apple turned away from ATI several years ago in favor using graphics chips from Nvidia Corp., the company's recent transition to Intel microprocessors has signaled the return of ATI as the primary supplier of graphics chips for the company's Mac line.