I’ve been fooling around with Claude AI and decided to start an inquiry into INTC’s recent agreement to sell the federal government a 9.9% equity interest in the firm at a 17% discount to the then-prevailing stock price. President Trump, who ostensibly brokered the deal, is quoted as saying, “I paid zero for Intel. It’s worth $11 billion.”
The actual terms are complicated. The most important, as I see it, are:
–the government pays INTC $8.9 billion, of which $5.7 billion is in government support already promised but not yet disbursed; the rest comes from a classified defense program. The 443 million shares purchased translate into a price of $20.47 per share, a 17% discount to the then-prevailing stock price
–in addition, the government gets 240.5 million warrants that each entitle the holder to purchase one new share at $20 each over the next five years. These are only exercisable if INTC no longer has ownership control of its foundry business
–the government gives up its claim to repayment of $2.2 billion in previous loan-like grant instruments
–the government is able to resell these shares, but only in, in effect, a public offering. The shares have essentially no voting rights, however. As I read the 8-K describing the sale, the shares must be voted with management, except in a case where the company would be trying somehow to damage the government’s interest.
If we look at this deal in the simplest terms (my favorite way), Washington is injecting $8.9 billion in cash into INTC and dissolving a potential liability of $2.2 billion. That’s a total improvement in INTC’s financial value of $11.1 billion. The current market cap of INTC is just under $110 billion, meaning that the government’s 10% interest, ex warrants, is about $11 billion. So, as I see it, Washington is paying $11 billion for stock now worth $11 billion.
Three caveats:
–the warrants arguably have some value, although my guess is that Washington would arrange another bailout rather than allow INTC to sell its foundry business
–other semiconductor firms, from TSMC to Micron, are getting very large amounts of government money without having to give up equity. On one hand, Washington is clearly committed to keeping INTC afloat. On the other, the fact that no other major semiconductor firm has had to give up equity to get government funding indicates how weak INTC’s competitive bargaining position is
–I wonder who, other than INTC itself, would be a buyer of stock without voting rights. Could a fiduciary–and institutional investor or an index fund–legally do so? Does the restriction on resale of the government-owned shares apply only to Washington or to any subsequent holder as well?