Mubadala anticipated to bail out AMD if cash reserves drop too low

Abu Dhabi government investment vehicle Mubadala may potentially increased its stake in chip designer AMD from 15 percent to roughly 19 percent through unexercised warrants for additional stock purchases. Williams Financial Group analyst Cody Acree claims the move makes it more likely that Mubadala will bail out AMD if the company's cash reserves dip too low.

Mubadala Development Co. extended its stake in AMD to about 19 percent including warrants and took an extra board seat last month, making it more likely that the investment arm of the government of Abu Dhabi would bail out the company if cash reserves dipped too low, said Cody Acree, an analyst at Williams Financial Group.

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Mubadala became the largest shareholder of AMD in a transaction announced in 2008 under which the investment company bought the chipmakers’ manufacturing facilities to create a made-to-order semiconductor producer called Globalfoundries. AMD is one of that company’s largest customers.

AMD’s share gains have been exaggerated as some investors were forced to buy the shares to cover short positions, said Acree. That and the recent stock slump has made the shares volatile, said Ambrish Srivastava, an analyst at BMO Capital Markets.

Source: Bloomberg