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Investing.com -- Recent equity investments in Intel strengthen the company’s balance sheet but make a near-term sale or spin-off of its foundry business improbable, according to Bank of America analysts.
Intel announced $2 billion in equity investment from SoftBank at $23 per share and a $8.9 billion investment from the U.S. government, equating to a 9.9% stake at about $20.47 per share.
The government’s contribution represents “a mix of new capital received from the former and a pull forward of previously awarded CHIPS Act grants ($5.7B) and Secure Enclave contract ($3.2B),” BofA wrote.
The U.S. government will also receive a 5% warrant at $20 per share, but only exercisable if Intel’s stake in Intel Foundry drops below 51% within five years.
“This implies to us that it is unlikely Intel spins/sells a majority of IF for the next 5 years, but still leaves open the possibility of spinning/selling a large minority stake,” the analysts said.
BofA expects Intel’s net leverage to improve by 0.3x–0.4x in 2025 and 2026, to 1.5x and 1.2x, respectively.
However, free cash flow estimates are lowered by $3 billion in 2025 and $2 billion in 2026 to reflect the shift in grant accounting.
The analysts described the transactions as a “moderate vote of confidence by U.S. and tech companies,” though they warned it “does not particularly address concerns about Intel’s longer term competitiveness either within Intel Products … or with execution of Intel Foundry.”
Calling the moves “credit positive,” BofA reiterated its Marketweight rating on Intel bonds, while keeping an Overweight stance on select long-end bonds.