Intel CEO departure opens door to new deal discussions

(Bloomberg) — Intel Corp Chief Executive Pat Gelsinger’s abrupt departure provides the struggling company a new opportunity to consider potential deal options, including ones he rejected while running the chipmaker. plan.

In recent months, the board has discussed a range of possibilities, such as a private equity deal and even a spinoff of Intel’s factory and product design operations. But Gelsinger opposed breaking up the company, focusing instead on plans to restore Intel’s technological edge and become a custom manufacturer for outside customers.

Kissinger resigned this week under pressure from the board and will receive a severance package of up to $10 million. With him gone, we have the opportunity to restart the conversation. Morgan Stanley and Goldman Sachs Group Inc. have been helping the company consider its options and potentially find a more receptive audience among new management.

This is also an opportunity for acquirers to reconsider acquiring some or all of the business. Qualcomm had previously expressed some interest in a deal, but it didn’t go well, Bloomberg reported.

“Leadership changes increase the likelihood of divestitures,” Bloomberg Intelligence analysts Kunjan Sobhani and Oscar Hernandez Tejada said in a report on Monday. “Gelsinger is staunchly opposed to breaking up companies, but a lengthy and costly transition would test It may strain the patience of shareholders and force Intel to reconsider.”

Intel’s board of directors evaluated a variety of options, including the idea of ​​a spinoff, at a key meeting in September. The discussion follows a poor earnings report last month, when Intel unveiled an unexpected loss and disappointing sales forecast.

But Intel has pushed for less radical changes, including suspending construction of factories in Poland and Germany. The company is also cutting about 15,000 jobs and suspending dividends for decades – part of a plan to conserve cash and maintain Kissinger’s turnaround.

If the new CEO continues a larger shakeup, Intel may revisit the following deal ideas:

1. Split of factories and product departments

That would involve completely separating Intel’s factory operations from its more profitable product development divisions. Under Gelsinger, the company has been expanding its manufacturing operations to become a foundry — a manufacturer that produces components for outside customers. The idea is to eventually compete with TSMC, the pioneer in foundry methods.

But Intel has announced only a few big customers for its foundry business, and the production scale of high-end chips is not large enough to make the effort profitable. Perhaps worse, sales have been declining—an ominous sign for a company entering a large new industry segment.

While Intel may be able to find a buyer for its product units, the foundry business will be a harder sell. The largest chip foundry in the United States is GlobalFoundries Inc., which is facing its own difficulties. The company lacks the cash or experience to operate the type of manufacturing Intel plants do.

It’s unclear whether Intel’s new CEO or other board members are ready to dismantle a company that once dominated the chip industry. The move could complicate Intel’s ability to secure $7.9 billion in federal grants under the America’s Chips and Science Act, which seeks to revitalize domestic chip production.

Representatives for Santa Clara, Calif.-based Intel declined to comment. The Commerce Department, which is responsible for the incentives of the CHIP Act, said of Kissinger’s departure that “it is expected that the industry will evolve and transform” and that the agency will continue to focus on promoting the economy and national security while protecting taxpayers. people’s money. CHIP Act awards are subject to reaching certain milestones and require months of due diligence.

2. Attract suitors like Qualcomm

Bloomberg reported that Qualcomm had considered acquiring Intel, but its interest had cooled as of last week. People familiar with the matter said at the time that the complexity of acquiring all of Intel’s shares made the deal less attractive.

But Qualcomm could consider acquiring some of Intel’s businesses, such as its product business. Like many companies in the chip industry, Qualcomm does not make its own semiconductors. Instead, it designs its chips and relies on partners such as TSMC to handle production. That’s why it’s unlikely to want Intel’s factory operations.

Broadcom had previously evaluated whether to pursue a deal with Intel but had not advanced talks, Bloomberg reported in September. When Broadcom CEO Hock Tan was asked that month whether he might pursue a chip acquisition, he said he was fully focused on integrating the VMware acquisition.

Any major chip merger will also face regulatory hurdles around the world — something both Qualcomm and Broadcom are aware of. In 2018, U.S. President Donald Trump blocked Broadcom’s plan to acquire Qualcomm, but the deal failed.

Intel’s Altera unit, which it acquired in 2015 for about $17 billion, makes chips that can be reprogrammed for different uses after manufacturing. Intel has been in talks to sell part of its business to financial investors, a possible step toward an initial public offering for the unit.

Buyout firms including Francisco Partners, Bain Capital and Silver Lake Management have been exploring proposals to invest in Altera. Last month, however, Bloomberg reported that Lattice Semiconductor was considering a takeover bid for all of Altera. Lattice is working with advisers and seeking private equity backers as it explores potential bids, people familiar with the matter said.

Whether or not such a deal goes forward, the idea of ​​selling all of Altera could gain new momentum under a new Intel CEO.

Earlier this year, Apollo offered to invest billions of dollars in Intel. The New York-based company said it was willing to make an equity investment of up to $5 billion, Bloomberg reported in September. But the talks did not lead to an announcement.

Apollo already has a partnership with Intel. The company agreed in June to buy a stake in a joint venture that controls Intel’s Irish chip factory for $11 billion. This makes further negotiations more likely for the partners.

5. Mobileye Transaction

Intel acquired Mobileye, a maker of autonomous driving technology, in 2017. Although the company will go public in 2022, Intel still owns a majority stake in the company. That could change under a new CEO.

In September, Intel said it had no plans to divest its majority stake in Mobileye “at this time.” But Bloomberg reported earlier this month that the chipmaker was considering options for its 88% stake.

Intel may sell part of the stake on the open market or by selling to a third party, people familiar with the matter said. Regardless, it’s unlikely to be a successful investment for Intel, which paid about $15 billion for Mobileye. The company currently has a market capitalization of $14.1 billion.

—With assistance from Mackenzie Hawkins.

(Updated with comments from Commerce Department in paragraph 13.)

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