AMD and ATI are to tie the knot, the two companies confirmed this morning, ending weeks of frenzied speculation in the process. The merged business will form a "formidable" competitor to Intel, Nvidia and other chip makers, the pair suggested.

Well, maybe. And then only if both firms' shareholders approve the board-recommended acquisition, which will see AMD take on "technologies, people and complementary strengths". Both boards approved the plan "unanimously", AMD said.

If approved, the deal will see AMD buy all outstanding ATI shares - which closed on Friday at $18.26 - for $4.2bn in cash and 57m AMD shares. ATI shareholders will be offered $16.40 in cash and 0.2229 AMD shares for every single ATI share they hold.

AMD said it will use some of its own cash reserves and take on new debt to fund the cash component of the deal. Morgan Stanley Senior Funding has promised the company $2.5bn, and AMD has $3bn in the bank.

ATI will pay AMD $162m if the deal doesn't go through as planned, and the acquisition is expected to be completed during Q4 2006, the pair said.

AMD and ATI stressed the financial advantages of the merged business: together, the two posted sales totalling $7.3bn in the last four quarters, and bringing the two together will shave $75m off their total operating expenses by the end of 2007, they calculate.

AMD is certain to annoy its other chipset partners, Nvidia, VIA and SiS, but if they can compete with Intel, they can compete with a new AMD that is also producing its own chipsets. AMD's recent marketshare gains means it's ready to take the next step forward, and that means greater control of platforms, not just processors, just as its arch-rival has.

AMD has long wanted to emulate Intel's success with Centrino, for example, and this deal makes it possible to start doing so, in a variety of market segments. It also picks up a thriving GPU business and ATI's endeavours to break into other markets, such as consumer electronics and mobile phones - don't forget its recent tie-in with Nokia. ®