On August 23, 2022, Intel Corp. and Brookfield Asset Management of Canada decided to jointly raise up to $30 billion for the Arizona chip plants of the American manufacturer of semiconductors.
The infrastructure subsidiary of Brookfield would contribute up to $15 billion for a 49% stake in the initiative. The two semiconductor factories in Chandler, Arizona, designed to make cutting-edge processors, would remain under the operational control and majority ownership of Intel. According to Intel’s financial officer, David Zinsner, the deal “builds on the momentum from the recent passage of the CHIPS Act in the U.S.”
Intel’s Deal Rationale
According to GlobalData, the number of deals decreased significantly in the last six years, from 76 in 2017 to 45 in 2022.
The current agreement between Intel and Brookfield Infrastructure Partners (BIP) is a major deal. In conjunction with this deal with Intel, BIP secured legally enforceable non-recourse financing to fund a sizable portion of its capital commitment. Nevertheless, BIP’s equity component in this investment is expected to be between $500 million and $750 million and will be released in phases during the construction.
Most of the funding will likely be provided closer to the facility’s commissioning and will come from retained operational cash flow and earnings from the capital recycling program. Pending customary closing requirements, the transaction is expected to close by the end of 2022.
Impact of Agreement on Intel’s Revenue
Revenue of Intel declined significantly from $19,192 million in September 2021 (Q3) to $15,321 million in July 2022 (Q2).
After the industry reported a supply shortage of chips that lasted more than two years and halted the production of everything from cars to computers, the multibillion-dollar investments are intended to increase Intel’s chip production.
The agreement also offers many benefits. It enables Intel to access a new source of capital below its cost of equity, while preserving its funds and borrowing capacity for future investments. By continuing to fund a healthy and expanding dividend, the partnership with Brookfield is expected to strengthen Intel’s already strong balance sheet. The structure is expected to enhance Intel’s adjusted free cash flow by $15 billion in the next few years and increase the company’s earnings per share during and after construction.
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