NEW YORK (Reuters) - Shares of Advanced Micro Devices Inc. AMD.N rose more than 5 percent on Monday amid chatter that the No. 2 maker of computer microprocessors may be a takeover target.
AMD shares climbed to a session high on talk of buyout interest from private equity firms, according to Paul Foster, options strategist at Web information site theflyonthewall.com in Chicago.
He noted that the market chatter was unconfirmed. An AMD spokesman declined to comment on rumors or speculation.
“The volume in AMD March calls have been abnormally high,” said Steve Sosnick, equity risk manager at Timber Hill, a division of Interactive Brokers Group. “There are rumors of a private equity buyout. At least in the near term, the options market is giving some credence to these rumors.”
Shares of AMD, which competes primarily with larger rival Intel Corp. (INTC.O), have slipped about 12 percent since the company reported a $574 million fourth quarter loss in January and gave a disappointing revenue forecast. The report left analysts to question AMD’s goal of quadrupling microchip production capacity in 2008 from 2005 levels.
JoAnne Feeney, an analyst at FTN Midwest Securities, who has a buy rating and $22 price target on AMD, said rumors about private equity stemmed from the market’s view that the company needed to improve its financial situation.
“I think essentially the rumors are borne of AMD’s weak balance sheet,” she said. “When they acquired ATI, they had to borrow quite a lot to finance that purchase and that’s created a higher debt-to-capital ratio than they had in the past. It’s still in that squeeze.
During the first half of Monday’s session, many investors were busy snatching up calls in AMD, hoping to profit from strength in the underlying shares.
A total of 85,122 calls and 25,976 puts traded in AMD, up from Friday’s total volume of 32,725 contracts, according to market research firm Track Data.
Additional reporting by Doris Frankel in Chicago, and Ritsuko Ando in New York