Thursday, 5 August 2021

Xilinx (XLNX) and Advanced Micro Devices (AMD) Deal Spread: 40% Discount But...

The deal-

Under the terms of the agreement, Xilinx stockholders will receive a fixed exchange ratio of 1.7234 shares of AMD common stock for each share of Xilinx common stock they hold at the closing of the transaction.
Source: AMD

If you buy XLNX now and the deal goes through, you are getting AMD shares at ~40% discount. With the big discount, the market is probably pricing the deal to fall through. All that's left with is China.

In 2018, China the Qualcomm & NXP merger. In more recent news, China also blocked the merger of Huya and Douyu.

Chart from TradingView

If the merger falls through, would you be willing to own XLNX at a 40+ forward P/E with 21% annual growth? I'm not going to pretend like I know what XLNX actually does but here's a rough comparison with other fabless companies.

Company

Forward P/E

Revenue Growth (YoY, Q2 2021)

XLNX

40

20.9%

AMD

43

99.5%

QCOM

18

64.5%

AVGO

27

15.2%

At a more reasonable 20-30 P/E, XLNX will have to drop by 20%+. While a 40% discount on AMD seems tempting, the price of XLNX will most likely suffer should the deal fall through. 

With China clamping down on their own companies, would they allow this deal to go through?
Would you be willing to stomach a 20-30% drop in share price for a 40% discount on AMD?

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