Trump's Intel deal is making investors nervous

The US government's new stake in Intel is making some investors nervous that President Donald Trump's deal heralds an era of government meddling in private industry, particularly as the arrangement followed Trump's call for the resignation of the computer chip maker's CEO. The deal, announced on Friday, converts $11.1 billion in Chips Act grants and other government funding into a 9.9% equity stake in Intel. The company's press release announcing the deal included statements from the CEOs of Microsoft, Dell and other companies praising the move, reported Reuters.

Investors said this level of tractability was not usually associated with relations between businesses and Washington. Trump had said on social media that Intel CEO Lip-Bu Tan wanted to keep his job and "ended up giving us $10 billion for the United States."

"It sets a bad precedent if the president can just take 10% of a company by threatening the CEO," said James McRitchie, a private investor and shareholder activist in California who owns Intel shares. The statement, he said, effectively sends the message that "we love Trump, we don't want 10% of our company taken away."

Intel shares closed at $20.41 on August 6, the day before Trump called for Tan's resignation, and trended upward to finish at $24.56 on August 15, the last trading day before Trump's terms surfaced. On Tuesday, Intel closed down 1% at $24.35. The deal does not give the US Commerce Department board seats, according to a securities filing, and it requires Commerce to support the board on director nominees and proposals. But Commerce can vote "as it wishes" on several other matters. It was reported by Reuters.

Fitch Ratings said the deal does not improve Intel's BBB credit rating, which sits just above junk status. While it provides more liquidity, it does not fundamentally improve customer demand for Intel chips, Fitch said in a research note on Tuesday.

Intel's filing also states the deal dilutes existing shareholders, reduces their voting rights, and could subject the company to additional regulations or restrictions in other countries. What's more, CEO Tan said Intel did not need the money. SoftBank poured $2 billion into the chipmaker three days before the Trump announcement.

This was the latest extraordinary intervention in a private corporation by Trump's White House, following a military deal for a mining company stake announced in July and influence over U.S. Steel as part of its purchase by Japan's Nippon Steel . On Tuesday U.S. Commerce Secretary Howard Lutnick said the Trump administration may take stakes in defense contractors.

Yet the U.S. moves could be seen as business as usual in a number of European and Asian countries whose governments already own chunks of major companies. The German state of Lower Saxony has a 20% stake in Volkswagen, for instance.

"This has been going on for years with the Japanese government, the Korean government, the Taiwanese government, the Singaporean government, the Malaysian government," said Richard Hardegree, vice chairman of technology investment banking at UBS. "In Italy, in France, they've done massive amounts of industrial policy around the semiconductor industry ... for 40 or 50 years, ever since everybody figured out the semiconductor is important."

During the 2008-2009 financial crisis, Washington also took equity positions in several endangered vital companies, but those arrangements were temporary. Pressuring otherwise healthy companies for long-term ownership stakes was unprecedented, and the move has alarmed some investors. Rich Weiss, senior vice president and chief investment officer of multi-asset strategies for American Century Investments, said future federal investments "will need regulations and guidelines to limit the opportunities for abuses such as insider trading."