Why Xilinx Jumped 15% This Week
What happened
Shares of semiconductor maker Xilinx (NASDAQ: XLNX) are up 15.1% for the week as of 12:40 p.m. ET Friday, according to data from S&P Global Market Intelligence. The big move, however, doesn't reflect a strong earnings report or an impressive competitive development. Rather, this week's advance mirrors that of Advanced Micro Devices (NASDAQ: AMD) stock, which is being used to finance the AMD acquisition of Xilinx that recently cleared a potential impasse.
So what
Advanced Micro Devices' intent to acquire Xilinx was first unveiled in October 2020. The COVID-19 pandemic created logistical hurdles for the planned pairing, but making matters even more complicated was the need for a regulatory sign-off from China. That clearance came a week ago today, boosting AMD shares. The merger, after all, should create one of the world's premier chipmakers with exposure to several key markets including data centers and mobile devices.
Image source: Getty Images.
The recently approved deal, however, isn't being facilitated with any cash payments to Xilinx shareholders. Xilinx investors will instead be compensated with Advanced Micro Devices stock -- 1.72 shares of AMD for every one share of Xilinx they own. In that the acquisition has now been fully approved and the share-exchange ratio is fixed, Xilinx stock's movement is now entirely linked to AMD's.
To this end, AMD shares started this unusually volatile week with plenty of upside potential. Shares had fallen more than 30% from their December peak through last Friday, when China's regulators finally approved the deal that will certainly create a more competitive and synergistic company.
Now what
The stock-financed transaction should now be finalized within a few months, resulting in a proverbial whole that is greater than the sum of the two parts. In this vein, AMD as well as Xilinx shareholders should be excited about their long-term prospects. Current Xilinx owners don't need to do anything, either; your brokerage firm will handle the stock swap.
Indeed, there's no point in purchasing Xilinx shares from this point forward. Some brokers will charge a fee for these sorts of buyouts, and there's also a brief exchange period during which it's difficult to sell a stock about to be taken out of circulation. AMD stock, conversely, will remain liquid during the entire transitional period, and owning it won't impose any sort of reregistration fee.
In simpler terms, if you're a fan of the combined entity, just buy Advanced Micro Devices.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool owns and recommends Advanced Micro Devices. The Motley Fool recommends Xilinx. The Motley Fool has a disclosure policy.
