- In today’s CEO Daily: Geoff Colvin on the Trump administration’s deal with Intel.
- The big story: Trump tries to fire a Fed governor.
- The markets: Global selloff underway.
- Plus: All the news and watercooler chat from Fortune.
Good morning. What just happened? Only 15 days after President Trump posted that Intel CEO Lip-Bu Tan “is highly CONFLICTED and must resign,” the two men had seemingly become best buds, and the U.S. sent Intel $8.9 billion in return for a 9.9% stake in the company. Then, yesterday, National Economic Council Director Kevin Hassett told CNBC, “I’m sure that at some point there’ll be more transactions, if not in this industry, in other industries.” He likened the deal to a “down payment on a sovereign wealth fund.”
But why? Why now? What’s next?
For answers, I spoke with three experts on government investments in companies. Three themes came through—though answers were harder to find.
This deal is like none other. “It is entirely unusual, if not unprecedented, for the United States government to take a significant ownership stake in a major company in the United States, particularly one in a strategic industry,” says Douglas Rediker, a lawyer and economist with long experience in global finance, sovereign wealth funds, global capital flows, and their impact on foreign policy. Luigi Zingales, a professor at the University of Chicago business school, says, “The thing that, to me, is shocking and unbelievable is that it starts as an attack to the CEO based completely on his potential self-dealing—which might be true, might not be true—but if that’s the problem, it cannot be solved by giving some stock to the U.S. government.”
The deal’s objective is far from clear. William Megginson, a professor at the University of Oklahoma business school, has researched the privatization of state-owned enterprises and sovereign wealth funds. He notes that the $8.9 billion paid to Intel is an advance of money earmarked for Intel in the Chips Act, so “the government is not bringing any new capital.” But then “what is the government bringing if it’s not bringing capital to catch up with Taiwan Semiconductor, which is probably going to invest something like $40 billion just this year—three or four times what Intel can spend?” Zingales says, “That is the biggest problem. If you have an objective, you can say it is right or wrong, feasible or not feasible. But without a clear objective, it’s kind of a mess.”
Intel’s competitors won’t like this deal, and they can’t know what to expect. “Are we now in an era in which the U.S. government is literally picking national champions, and if so, what does that say to other companies?” Rediker asks. “Does that mean Intel will now be given preferential treatment in, for example, government contracts? If you’re Intel’s competitors, you might be scratching your head and saying, Maybe we want to go in a different direction if we’re going to be compromised or disadvantaged because Intel is now the favorite son of the industry.”
If you’re a CEO, have worked for Intel in the past (or compete with them), I’d be particularly curious to hear your thoughts on the state of affairs. You can email me directly at Geoff.Colvin@fortune.com.
