Citi analyst Christopher Danely opened a "negative catalyst watch" on Xilinx (XLNX) with the stock up about 10% since media reports of a potential takeover by AMD (AMD). The analyst expects the former to sell off after quarterly results as he believes no deal will be announced. Xilinx management is against getting taken out given the company's "dominant and improving position in the high-margin PLD market," Danely argues.

CITI SEES NO AMD DEAL: Citi analyst Christopher Danely opened a "negative catalyst watch" on Xilinx, telling investors that he expects Xilinx shares to sell-off after the company reports results on October 21. He does not expect a deal with AMD to be announced as he believes Xilinx management is against getting taken out given the company's "dominant and improving position in the high-margin PLD market," Danely told investors in a research note. The analyst kept a Neutral rating on Xilinx shares with a $107.50 price target.

AMD DEAL: Earlier this month, The Wall Street Journal's Cara Lombardo and Dana Cimilluca reported that AMD was in advanced discussions to purchase rival Xilinx in a deal that could be valued at over $30B. The companies have had conversations on an agreement that reportedly could happen soon, the report had claimed. Sources told the authors there is no guarantee that a deal will get done as talks had stalled before picking back up recently.

Commenting on the Journal's report, RBC Capital analyst Mitch Steves told investors that an all-stock deal format was more likely, which would place AMD "into a trading range" until the transaction closes or gets approved. Steves believes that longer-term, Xilinx is a "solid target" for AMD as it primarily competes with Intel's (INTC) FPGA business, and "Intel has had numerous struggles with pushing to higher-end tech while AMD has surpassed Intel over the past 1-2 years."

Seeing Xilinx shares as "fully valued" following the news of a potential AMD acquisition, Baird analyst Tristan Gerra downgraded the stock to Neutral from Outperform on October 12, with an unchanged price target of $120. While the analyst acknowledged that the company should benefit from strong capacity build plans over the next two quarters related to 4G and 5G deployments, he noted that the stock is now trading at 35 times 2021 earnings estimates.

Also commenting on the Wall Street Journal's report that AMD was in talks to buy Xilinx, Wedbush analyst Matt Bryson said he was initially "less enthusiastic" about the rumored acquisition. While there would likely be some longer-term operational and sales synergies, Bryson would be surprised if the transaction results in immediate substantial accretion and doesn't see Xilinx filling an obvious technology gap for AMD. Without more details around a deal and/or AMD's argument for a transaction, the analyst struggles to understand the logic behind this combination.

PRICE ACTION: In late morning trading, shares of Xilinx have dropped about 0.5% to $115.91, while AMD's shares have slipped almost 1% to $81.62.