Intel’s takeover dilemma: A Gordian knot of funding and politics

Editor’s take: A takeover of Intel has become a Gordian knot. The company’s factories require massive investments – billions of dollars and several years to fix – which most prospective buyers, companies or private equity firms aren’t willing to handle. The US government has also poured a lot of money into these factories, making it politically difficult to shut them down. The problem is clear: no one wants the factories, but Intel can’t be sold without them.

No one wants to buy Intel’s fabs and their bottomless funding needs, but the company probably cannot be sold without someone taking them on.

There’s been more stories this past couple of weeks about Intel getting acquired. An industry analyst claimed that he “had been read a letter” which showed some unnamed company was in the process of buying the company. We are not going to link to that report because we are not certain about its accuracy… something in the language feels “off” to us. Nonetheless, it sparked a surge in the company’s share price and a host of follow-up coverage.

Editor’s Note:
Guest author Jonathan Goldberg is the founder of D2D Advisory, a multi-functional consulting firm. Jonathan has developed growth strategies and alliances for companies in the mobile, networking, gaming, and software industries.

This is not exactly news – Reuters reported this back in September, and to be blunt, we trust Reuters’ sourcing a lot more. Going back even further, we speculated that Broadcom could buy Intel all the way back in May before things got really bad at Intel. We were only semi-serious about that idea, but this timeline has clearly entered reality-is-stranger-than-fiction territory, and it looks likely that Broadcom at least considered a bid. As we have been saying, Intel is in play, and anything is possible.

Well, not anything. There are only a handful of companies capable of buying Intel, and the two most likely candidates have already taken a look and seem to have stepped away. There are also a dozen or so private equity funds who could afford it, but our sense is that they are passing on it as well.

A takeover of Intel has become a Gordian knot. The big problem is funding the company’s fabs, which will require tens of billions of dollars and years to get back on track. Few companies, and no private equity funds, really want to deal with that large of a funding need and time horizon. On the other hand, the US government has given Intel a lot of money, and so simply shutting down the fabs is deeply problematic. No one wants the fabs, but the company cannot be sold without them.

In theory, the new administration could give a buyer approval to shut the fabs, but if someone has enough political capital for that purpose, why not use that political capital to secure some direct government support?

In speaking with investors, our impression is that the Street assumes the only way to save Intel is for the government to intervene. We maintain that this is not a hard requirement, but we recognize that this is now the common perception of the situation. There are, of course, rumors that a certain highly-connected, deeply troubling tech mogul has a plan to buy the company. And from the very narrow perspective of saving the US’ semiconductor manufacturing capacity, that may be what it takes.

We are increasingly convinced that the only way for Intel to survive is for someone to buy them and remove the board. Unfortunately for the company, and the semiconductor industry, that path looks very challenging.

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