.....here's a mas "astute" analysis
AMD stock will fall further as all those big institutional boys who bought shares/notes at 7 will want to take profit while they can
........here's a "different" analysis
Goldman Sachs Snaps Up $613 Million Worth Of AMD Stock
Mar. 9, 2017 8:45 AM ET|187 comments| About: Advanced Micro Devices, Inc. (AMD), Includes: GS
Austin Craig
Austin Craig
Deep value, special situations, contrarian, event-driven
(977 followers)
Summary
Goldman Sachs Invests $613 million into AMD.
AMD investor Mubadala Development Corporation will buy $299 million worth of AMD.
Take away for AMD investors.
In this article we explore how and why Goldman Sachs and Mubadala Development Corporation are both major investors in AMD. If AMD is good enough for both of these mega investors, then it may be good enough for you, too.
Intro
A recently-penned piece commented that AMD (NASDAQ:AMD) investor Mubadala Development Corporation was selling shares en masse:
"Advanced Micro Devices filed a Form 4 report on the trading of Mubadala Development Corporation. The transactions consisted of the sale of 45 million AMD shares on Friday, March 3, the day after the Ryzen launch. In so doing, Mubadala disposed of about 1/3rd of its holdings in AMD, leaving it with about 97 million shares."
"The action by Mubadala, which is the owner of Global Foundries, in part explains the lack of recovery in AMD share price on Friday. After falling 7% on Thursday, March 2, the day that reviews of Ryzen came out, the stock fell another 6% on Friday."
The great news is that Goldman Sachs is buying $613 million of AMD... but why is Mubadala selling? Investors are confused over this point. We will shed light on it; explore the details -- and explain what it really means for AMD investors.
Warrant Structure aka The Terms
In our previous article entitled: "Why I Own AMD", we explained how the AMD warrant to Mubadala was structured:
"Warrants - AMD issued warrants to "West Coast Hitech L.P., a wholly-owned subsidiary of the Mubadala Development Company PJSC, a warrant to purchase 75 million shares of AMD common stock at a purchase price of $5.98 per share. The warrant may be exercised in whole or in part prior to February 29, 2020. The warrant is only exercisable to the extent that Mubadala or its subsidiaries do not beneficially own, either directly or indirectly, an aggregate of more than 19.99 percent of AMD's outstanding capital stock after the exercise. "
Mubadala is sellling 45 million shares at $13.63 per share to Goldman so it does not violate the terms of the warrant agreement. In effect, they are selling off the old shares they own and making room for the new shares. They are forced do this before the warrants expire (prior to February 29, 2020). All the share transactions can be a little confusing on the surface... but bear with us. We will break down the numbers and then explain why it matters to you.
The Math of the Deal
For a simplistic view, just take a gander at the Excel snapshot below and scan to the row entitled "Impact of 50m Warrants". This shows exactly what is going on. If you want the full math, then read on or feel free to skip to the next section.
Let's revisit this to confirm the calculations: Per the SEC 13D document , Mubadala owns 146.9 million shares of AMD. AMD has 940.7 million shares outstanding. The Mubadala warrant is good for 75 million shares. 146.9+75 = 221.9 potential shares. Now, we take the old share count of 940.7 million and add 75 million of the warrants to get 1015.7.
221.9 / 1015.7 = 21.8% potential ownership.
Clearly this would violate the terms of the agreement and thus could not happen. Mubadala MUST sell shares if they want to use the warrant to the max extent.
Thus: Mubadala sells 45 million shares to GS at 13.63 per share for 613.3 million dollars. This puts Mubadala at owning 101.9 million shares (or 10.8% ownership of AMD). Such, per the footnotes in the SEC 13D:
"Warrants are exercisable with respect to 50,000,000 shares within 60 days of this Amendment No. 7."
So... 60 days after March 3rd, Mubadala will be able to exercise 50 million of its 75 million share warrant and go to owning 15.3% of AMD (Total share count will increase to 990.7 -- if the 50 million are exercised). The remaining 25 million shares of the warrant Mubadala owns are not mentioned. We must assume Mubadala is not using them (at the moment) because in the SEC 13D the total share count does not rise to reflect this. When they use them, they would still not own over 19.99% of AMD. Thus -- they are in the clear.
Numbers Make My Head Hurt, Just Tell Me What Is Going On
AMD could potentially get paid $5.98 x 50 million shares or 299 million dollars in a few months per Mubadala. That is a lot of capital that can be used to funnel into R&D, acquisitions, or reduce debt.
Mubadala goes from owning 15.6% of AMD to owning 15.3% due to the share count changes, but simultaneously frees a considerable amount of capital (613 million sold to GS but 299 million paid to AMD). Also, they keep 25 million shares in the form of what remains on the warrant (but with less risk).
Goldman Sachs purchased 613.3 million of AMD. Goldman obviously believes AMD is undervalued -- and hopes to resell AMD shares at a higher future price. The lockup period for the acquired block trade shares will end early May with AMDs' server CPU "Naples" being released after.
Conclusion
Mubadala is playing its cards to increase the total shares it owns in AMD and could be paying AMD 299 million in a few months. Goldman Sachs has bought 613 million of AMD stock. The hype of Naples and the high-end GPU "Vega" will send the stock north this summer. Goldman Sachs will profit. Thus: Now is the time to bet with "Team Goldman". After all they did not become not one of the most powerful financial institutions on the planet by losing money on a regular basis. Thus We have increased our holdings in AMD stock based upon this news.
Disclosure: I am/we are long AMD.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in thi
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