In case you’re wondering what the title is about, one of the governmen-owned investment firms of the UAE emirate of Abu Dhabi, Mubadala Development, is going to buy
$700 million of newly issued AMD stock
We Told You So (sort of)
Back in early August, we said the following:
The problem for AMD management is that they really want a sugar daddy, not just someone to take them over. If a real tech company took them over, well, current management would be history very quickly. . . .
No, what AMD wants is someplace with a lot more spare capital than a PE firm, a place willing to spend additional billions for a strictly long-term payoff, no desire or inherent ability to actually run the company, leaving Hector and Company in place to do whatever they want while they write checks.
A fantasy sugar daddy? No, such financial institutions do exist, and I think this is the audience AMD wants to address.
Just who are they? Hint, hint.
Now do I know this to be a fact? Absolutely not, nor do I have any idea if such funds would be at all interested in AMD. But given what AMD would like to have, it would be strange if AMD didn’t try hard to tap money from these sources.
Even if I’m dead wrong on that specific point, I really don’t doubt that AMD is out to woo somebody with a lot of money. Efforts like this report and the antitrust lawsuits and all the long-range project announcements and the rest are meant to make AMD look as pretty as possible to some sugar daddy.
They may well fail, but if they don’t, it’s not going to be one of the usual suspects, but some group none of us have ever heard of before.
A Few Words About the Buyers
Abu Dhabi is the biggest member of the United Arab Emirates (UAE). It gets a lot of oil revenue, and has few citizens, so much if not most of the oil revenue goes into investments, mostly in the immediate area, but some goes into foreign investments.
Mubadala Development is one of the investment arms of the Abu Dhabi government. It is not the investment arm, or even the major arm of that government.
If you want to get a bit of a feel for the company, this interview with its CEO, Khaldoon Mubarak, will help.
What’s the connection between this company and AMD? Mubadala bought a 5% share in Ferrari a while back, and the CEO is very involved in Formula One racing, as is AMD. I’m sure Hector’s had a lot of long talks with Mr. Mubarek, and that led to other talks, and eventually the purchase.
There will be much yahooing about this investment being dangerous or some kind of terrorist-helper, but that’s all it is, yahooing. This sale will not be blocked. Mubadala is an investment firm out to make money to built up a nest egg for Abu Dhabi before the oil runs out.
Just as Ferraris haven’t become the vehicle of choice for car bombers as the result of a Mubadala investment, AMD won’t be coming out with Terrorons or Jihad Editions, either.
The Biggest Bluff of All?
The investment pattern of these sovereign investment companies is pretty consistent. They don’t buy foreign companies; they buy significant, but not substantial or controlling interests in these companies. These are passive investments, they’re not interested in running the companies.
However, outsiders may get the impression (which AMD will do nothing to discourage in financial quarters) that AMD is now being backed by the Abu Dhabi government or parts thereof, and there’s plenty more where that investment came from.
And that’s probably not so. While there’s certainly enough money floating around the Abu Dhabi investment arms (if not Mubadala, then its bigger brothers) to buy AMD lock, stock and barrel, it’s just not their style to do so. Maybe one of the big brothers might eventually also buy their own 8-10% of the company, but probably not more than that.
Nonetheless, AMD will probably leverage this investment (and impressions coming therefrom) to get new money from other sources they otherwise wouldn’t get.
It may be by hook or by crook, but this investment and its subsequent consequences will very likely end the cash crunch at AMD and get them through at least 2008.
AMD’s problem in 2007 has been that they were losing lots of money, running out of a cash, and there was no apparent place whete they could easily get some more.
Well, now there’s a place that at least looks to be such a place, and while Abu Dhabi probably isn’t really a sugar daddy, it may well end up being AMD’s white knight by giving a sorely-needed helping hand and opening up some otherwise-closed money doors for Green.