AMD divorces itself, loses the house

Sunnyvale (CA) – Today, AMD announced it has closed its Asset Smart transaction, which will split the company into a foundry company and a chip developer, both separate entities. Former CEO and chairman of the board, Hector Ruiz, will leave AMD to become head of The Foundry Company, and is being replaced by board member Bruce Claflin.

AMD is just about to begin its journey as a separated chip developer and manufacturing company, a step the company had to take due to its rapidly deteriorating revenue and profit situation — mainly caused by the processor price war with Intel throughout 2007 and 2008. AMD said it has closed its “Asset Smart strategic transaction” with the Advanced Technology Investment Company (ATIC) and Mubadala Development Company of Abu Dhabi.

AMD received $700 million from ATIC for a portion of its ownership interests in The Foundry Company, while The Foundry Company assumes responsibility for the repayment of approximately $1.1 billion of associated AMD debt. Mubadala paid AMD approximately $125 million for 58 million newly issued AMD shares and warrants for 35 million additional shares.

AMD’s declining stock price has prompted both two parties to adjust the original terms of the agreement, under which AMD will now own only 34.2% of the fabs with ATIC holding the remaining 65.8%. In the original agreement, AMD would have owned 44.4% and ATIC 55.6%. The manufacturing company is still just called “The Foundry Company”, but AMD said it will reveal the actual name later this week.

“With the close of this historic transaction, AMD and its committed partners have conceived two strong industry-leading companies capable of charting future courses that will dramatically improve the technology industry,” said Dirk Meyer, president and CEO of AMD, in a prepared statement.  “Our ‘Asset Smart’ strategy is about more than providing AMD with long term access to world-class, leading-edge semiconductor manufacturing that is foundational to our growth strategy.  It is about transforming the industry.”

AMD said that it will have a “total enterprise value” of about $4.3 billion – consisting of intellectual property and employees valued together at approximately $1.8 billion, ATIC’s contribution of $1.4 billion in new capital and approximately $1.1 billion of debt assumed by The Foundry Company from AMD. This number may surprise some, especially those who look at AMD’s current market cap of just $1.22 billion.

As expected, former chairman of the board and CEO Hector Ruiz is leaving AMD with the closing of the Asset Smart transaction. There was no mention of any compensation for Ruiz or what his plans for the future are. He is replaced by Bruce Claflin, who has been a member of AMD’s board since August of 2003. AMD said that Claflin has 33 years of experience in senior positions with IBM, Digital Equipment and most recently as CEO and member of the board of directors of 3Com. In 2006, Claflin retired from 3Com Corporation, but remains a member of the board for Ciena.

Mubadala’s investment also bought a seat on AMD’s board of directors for Waleed Al Mokarrab, COO of Mubadala Development Company.