Intel's $7.86 billion subsidy deal restricts sale of its manufacturing unit

[Daniel Nenni]

FILE PHOTO: A smartphone with a displayed Intel logo is placed on a computer motherboard in this illustration taken March 6, 2023. REUTERS/Dado Ruvic/Illustration/File Photo© Thomson Reuters

(Reuters) - Intel said on Wednesday its deal for $7.86 billion in U.S. government subsidies restricts the company's ability to sell stakes in its chipmaking unit if it becomes an independent entity.

The U.S. Commerce Department announced the subsidy to Intel on Tuesday, part of $39 billion for the sector including Taiwan Semiconductor Manufacturing Co and others in an effort to revitalize chip manufacturing in the United States.

Intel Chief Executive Pat Gelsinger in September said that the company planned to spin its chip manufacturing operations into a subsidiary and was open to taking on outside investors in the unit, called Intel Foundry.

In a securities filing, Intel said on Wednesday the subsidies require it to own at least 50.1% of Intel Foundry if the unit is separated into a new privately held legal entity. If Intel Foundry becomes a public company and Intel itself is not the largest shareholder, the company could sell only 35% of Intel Foundry to any single shareholder before running into change-in-control provisions.

Intel did not immediately respond to a request for comment on the disclosures. A Commerce Department spokesman said the government is negotiating change-in-control provisions with all direct grant recipients.

Intel would need to comply with the restrictions to continue the company's $90 billion worth of projects in Arizona, New Mexico, Ohio, and Oregon and keep manufacturing cutting-edge chips in the U.S., according to the filing. Any changes in control could require Intel to seek permission from the U.S. Department of Commerce, the filing said.

MSN

 

[osnium]

FILE PHOTO: A smartphone with a displayed Intel logo is placed on a computer motherboard in this illustration taken March 6, 2023. REUTERS/Dado Ruvic/Illustration/File Photo© Thomson Reuters

(Reuters) - Intel said on Wednesday its deal for $7.86 billion in U.S. government subsidies restricts the company's ability to sell stakes in its chipmaking unit if it becomes an independent entity.

The U.S. Commerce Department announced the subsidy to Intel on Tuesday, part of $39 billion for the sector including Taiwan Semiconductor Manufacturing Co and others in an effort to revitalize chip manufacturing in the United States.

Intel Chief Executive Pat Gelsinger in September said that the company planned to spin its chip manufacturing operations into a subsidiary and was open to taking on outside investors in the unit, called Intel Foundry.

In a securities filing, Intel said on Wednesday the subsidies require it to own at least 50.1% of Intel Foundry if the unit is separated into a new privately held legal entity. If Intel Foundry becomes a public company and Intel itself is not the largest shareholder, the company could sell only 35% of Intel Foundry to any single shareholder before running into change-in-control provisions.

Intel did not immediately respond to a request for comment on the disclosures. A Commerce Department spokesman said the government is negotiating change-in-control provisions with all direct grant recipients.

Intel would need to comply with the restrictions to continue the company's $90 billion worth of projects in Arizona, New Mexico, Ohio, and Oregon and keep manufacturing cutting-edge chips in the U.S., according to the filing. Any changes in control could require Intel to seek permission from the U.S. Department of Commerce, the filing said.

MSN

What are the practical implications of these restrictions? Does it mean that a spinoff of Intel’s fabs is less likely?

 

[delong.height]

What are the practical implications of these restrictions? Does it mean that a spinoff of Intel’s fabs is less likely?

it might be the rope Pat G put on Intel, so that Intel shareholder cannot vote to get rid of Intel's fab in the future. On the other hand, they will always be the majority owner of IFS.

 

[osnium]

it might be the rope Pat G put on Intel, so that Intel shareholder cannot vote to get rid of Intel's fab in the future. On the other hand, they will always be the majority owner of IFS.

It ensures a minimum quantity for Intel Foundry but does this limit the ultimate potential for Intel Foundry? Perhaps future administrations might be more amenable to Intel spinning off the fabs so who knows.

 

[Daniel Nenni]

it might be the rope Pat G put on Intel, so that Intel shareholder cannot vote to get rid of Intel's fab in the future. On the other hand, they will always be the majority owner of IFS.

I think it's a good call by the DoC. Intel needs to stay together. If Intel sheds the other stuff (Altera, Mobileye, etc...) they can focus on the core business and bring leading edge semiconductor manufacturing back to the US.

 

[siliconbruh999]

DoC can make good decisions once in a while nice

 

[Markwrob]

When I read the announcement I wondered if Intel could (within the bounds of that agreement) keep IFS and spin out everything else. Thoughts?

 

[osnium]

When I read the announcement I wondered if Intel could (within the bounds of that agreement) keep IFS and spin out everything else. Thoughts?

I feel like someone would need to file a freedom of information request to get access to the legalese.

 

[hist78]

When I read the announcement I wondered if Intel could (within the bounds of that agreement) keep IFS and spin out everything else. Thoughts?

I think it's a good call by the DoC. Intel needs to stay together. If Intel sheds the other stuff (Altera, Mobileye, etc...) they can focus on the core business and bring leading edge semiconductor manufacturing back to the US.

Assume there is a transportation company called "Uncle Dan Worldwide." It owns several passenger airplanes, including two of its newest and most advanced models, "Phoenix" and "Ireland." Uncle Dan also owns a cruise ship called "AI". The company’s main business is transporting people between San Francisco and Hawaii.

Recently, Uncle Dan announced a major business improvement and expansion project to compete aggressively in the market. This announcement attracted interest and commitments from several investors. One investor group’s intention, however, is not profit-driven but focused on improving the quality and reliability of travel between San Francisco and Hawaii.

Uncle Dan's business model is unique because most of its industry peers focus on only one mode of transportation. Uncle Dan is the only company in the market that owns both ships and airplanes. Additionally, it operates its own marketing, sales, catering, hotels, resorts, logistics, paper towel manufacturing, vegetable and fruit farming, and travel agency services.

Before wiring funds into Uncle Dan's bank account, the new investors (referred to as the Wyky group) discovered that Uncle Dan had already sold 49% of "Phoenix" and 49% of "Ireland" to two other investor groups through a first-of-its-kind Super Smart Co-Investment Program (SSCIP). Under this arrangement, these investor groups are guaranteed undisclosed annual investment returns, even if Uncle Dan makes no profit or faces losses. Furthermore, the SSCIP grants "Phoenix" and "Ireland" priority in filling their cabins before any other planes in Uncle Dan’s fleet.

The Wyky group also learned that Uncle Dan is laying off 15% of its employees and plans to sell all its real estate holdings and lease them back if necessary. Additionally the cruise ship "AI", the only ship owned by Uncle Dan, has been relocated to Europe to operate routes between European countries.

Stunned and uneasy, the Wyky group is unsure about Uncle Dan's business model and future plans. In terms of ownership, they are unclear about who controls the critical parts of Uncle Dan's business and what regular investors will truly own and benefit from.

The Wyky group is also concerned that Uncle Dan might continue selling valuable assets and eventually transform into one or multiple financial holding companies. They worry that their investment may become a stepping stone for Uncle Dan insiders, leaving the Wyky group to bear the burden of risky and costly decisions while the insiders profitably exit ownership.

Disclaimer: The above story is purely fictional and is in no way related to any actual companies or individuals.