Intel Warns of Ramifications of US Government Stake

Intel (INTC.O) has issued a warning regarding the Trump administration's acquisition of a 10% stake in the company, stating that the move could trigger "adverse reactions" from investors, employees, and other stakeholders. The company highlighted potential risks associated with the deal in a filing with the U.S. Securities and Exchange Commission (SEC).

Concerns Over International Sales

One key concern raised by Intel is the potential impact on international sales. In the last fiscal year, 76% of Intel's revenue came from markets outside the United States, totaling $53.1 billion, a 2% year-over-year decrease. The company is concerned that direct association with Trump's changing trade policies could negatively affect its relationships with international customers.

Impact on Stakeholder Relations

"Investors, employees, customers, suppliers, other business partners, foreign governments or competitors, may have adverse reactions immediately or over time," Intel stated in the filing. The company added that the deal could lead to litigation and increased public or political scrutiny.

Potential Political Challenges

Intel also pointed out that potential changes in the political landscape in Washington could challenge or even invalidate the deal, exposing current and future shareholders to risk. However, the filing also mentioned that the Department of Commerce could vote against any attempt to reverse the deal or veto the government stake.

Impact on Shareholder Rights

Under the agreement, the U.S. government is required to vote in alignment with Intel's board of directors. However, the company noted in the filing that the government stake "dilutes stockholders’ voting and other governance rights and may limit some potential transactions favorable to stockholders in the future."

Potential Restrictions on Future Deals

The filing stated that the U.S. government’s substantial additional authority in influencing laws and regulations affecting Intel may limit the company’s ability to pursue deals that benefit shareholders. For example, the company noted that it is unclear whether the deal will lead to attempts by other government agencies to convert existing grants to equity investments, or make them less willing to support future grants.

Incomplete Financial Analysis

The company also acknowledged in the filing that it has not yet completed an analysis of all of the "financial, tax and accounting implications."

Deal Details

The deal, announced last Friday, gives the U.S. Department of Commerce up to 433.3 million shares of Intel stock. The shares issued to the U.S. government will be sold at a discount below the current market price, which will dilute the equity of existing shareholders.

Funding from Chips Act

The funding for the share purchase comes primarily from funds previously approved for Intel under the Chips Act during the previous Biden administration. According to the statement, Intel has received $2.2 billion under the program and will receive another $5.7 billion. Another federal program allocates $3.2 billion, bringing the total to $11.1 billion.

CEO Statements

Intel CEO Lip-Bu Tan reportedly said on Monday in a video released by the U.S. Department of Commerce that the company does not need government funding. "I don’t need the grant," Tan said, "But I am really looking forward to the U.S. government being my shareholder."

Trump's Support for the Deal

Trump called the deal a "great deal for America" and said that the manufacturing of advanced chips is "about the future of the country." He said that the government’s stake in Intel is just the beginning, and the government will own more shares in private companies in the future.

Leadership Changes

Intel experienced an extremely turbulent fiscal year in 2024, with former CEO Pat Gelsinger stepping down last December. During his four-year tenure, the company's stock price dropped significantly and lagged behind competitors in the AI boom. This March, Lip-Bu Tan succeeded him as CEO. With the August deal moving forward, Intel's stock price has steadily increased, rising by approximately 25% so far this month.