Investors love a good merger story. Intel Corporation (NASDAQ: INTC) shares surged on Friday on a Wall Street Journal report that Qualcomm Inc. (NASDAQ: QCOM) had made a takeover approach. After pulling back, the stock rose on potential of an outside investor on Monday. Traders and investors alike know that algorithms alone will trade any stock up on news like this, without care or thought of whether any sort of merger is even possible.

There may be a tactical theme in what is becoming a special situation here, but serious caveats are abound. Even without a hawkish DOJ and FTC (and EU/China), expecting a deal like this to ultimately be approved would be a more than just an optimistic scenario.

Tactical Bulls would remind readers that some merger rumors are just too good to actually happen. The WSJ report cited the typical “people familiar with the matter” and Barron’s (same parent company) included the typical notation that “a deal is far from certain.” If investors want to dare invest “tactically” for an Intel recovery they may want to be thinking of partnerships and stakes rather than far-fetched mergers with little possibility of being able to close.

The sad or ironic aspect of this whole situation is that Intel could use an absolute reboot like this. It could use it right now even after a recent $3 billion U.S. government deal to bolster defense. A merger with Qualcomm would create all sorts of operational consolidation opportunities. It would allow better protection in the markets where each company has been worried (where Intel is losing out). It would certainly allow for more U.S. manufacturing capabilities in the years ahead. And the financial benefits would be countless. And it all adds up to an illogical effort when you break down the real-world issues.

And all of this adds up to one great possibility here — why not form a partnership that can also take on outside investors? This review will include generalizations rather than extended unit-by-unit reviews.

OTHER POSSIBILITIES BEYOND A MERGER

If Qualcomm and Intel banded their efforts together in some of their more vulnerable positions (again, more of Intel’s woes beyond scale in coming years) it would be much harder for regulators to try to block a partnership. It is obvious that China would try to be a severe hurdle in approving anything resembling a merger, but in this modern era the companies might be able to forge ahead with a deal even if Chinese regulators file every attempt to block any deal. Think about the U.S. stance against China now before you think this is impossible.

Add in the angle that Barron’s also brought up with Apollo Global Management (NYSE: APO) interested in giving $5 billion to Intel. That report also cited “people familiar with the matter” and that “A deal isn’t done yet.” Those are media buzzwords for “don’t blame us if this turns out to be false or doesn’t come to fruition.”

Either potential path for Intel, even if odds are low, now classifies Intel as a “special situation” investment rather than just a lagging technology giant in need of a turnaround.

A LIKELY MOVE…

The move for Intel to partner with Qualcomm may not be out of the realm of expectations. Intel shares rose recently on the news that it was partnering with Amazon.com, Inc. (NASDAQ: AMZN) noting that it would set its manufacturing unit up as an independent entity. This would also allow outside investment here like other tech giants, sovereign wealth funds, and even private equity. There are very low hurdles on strategic investments. As long as Intel skirts around taking on direct competitors to Amazon it can likely add more investors if this all pans out.

Taking on a private equity investment is also possible here. Will activist investors be able to make a difference here? More on that front is coming (below).

ANALYSTS POO-POO THE DEAL

The S&P research arm CFRA has already panned the likelihood of a QCOM/INTC merger. It sees low odds (less than 20%) based on regulatory hurdles even if a potential combination would be fascinating/complementary, natural scale/cost synergies and complementary offerings and even that QCOM could “shift tons of orders to Intel’s foundry business. The report also cited China/Europe’s regulatory approval as being “far from certain” and that Intel’s financial position “likely limits QCOM from even considering a deal significantly above current levels.”

BofA Securities also maintained its Underperform rating on Intel while keeping its Buy rating on Qualcomm. Analyst Vivek Arya noted that there would be scale benefits, increased foundry utilization, and “asset sales positives”… all being overwhelmed by regulatory and financial hurdles, and that BofA would be skeptical of the merits of any potential transaction. In the end, BofA is still calling for continued market share by rivals like AMD, NVIDIA, Broadcom and ARM.

Benchmark analyst Cody Acree is keeping a Hold on Intel and sees no deal happening. His view is based on logical and strategic misalignments and sees financial and regulatory hurdles that would make such a deal difficult to execute.

Wells Fargo’s Aaron Rakers has a Hold rating ($28 target) with a deal having a low likelihood of passing regulatory approval (specifies China), but he also noted that “uncertainty surrounding the merger could pose a risk to Intel’s future prospects.”

INTEL’S BAD NEWS ISN’T ALL NEW

Intel has lost not just market share. Its revenues have been freefall from a few years ago. Its markets are under attack on all fronts and getting the U.S. foundry operations up and running (and profitable) is not a “NOW” story at all. Outside of mobile around ARM and Qualcomm, the server story includes Qualcomm but Advanced Micro Devices Inc. (NASDAQ: AMD) and NVIDIA Corporation (NASDAQ: NVDA) have taken away any attention Intel would have been hoping for. Servers, AI, and so on. Buyers just don’t talk about Intel anymore, even if Intel may become such a cheap and domestic candidate to ditch entirely.

Intel’s revenues of $79 billion in all of 2021 fell to $63 billion in 2022 and then down to $54 billion in 2023. Wall Street is modeling about $52 billion in 2024 revenues, with an expected uptick (from where is a good question) to just over $56 billion in 2025.

Intel’s woes have been years in the making. Its stock peaks of nearly $65 in recent years have been very brief and quite elusive to maintain. Its stock would now have to rally a whopping 200% just to get back up there.

Intel’s market cap is still back under $100 billion when other companies are now multiple times greater. Intel is now going through major layoffs (15,000 or so, for now). And S&P even issued a “CreditWatch Negative” view on what is a dwindling investment-grade rating for its bonds and credit issues. And in late-August, Intel was reported to have hired Morgan Stanley as an advisor to defend the company against “potential activist investor challenges” that now seem to be more likely.

Intel issued a major insult to investors in early 2023 by slashing its dividend by 65% to a mere $0.13 per share. The stock was still only around $30 then ($22+ now). But now Intel has announced it is suspending its dividend entirely after poor earnings and weak guidance.

MAYBE HELP FROM INTEL CAPITAL

And the last thing to consider is that there is still the VC arm of Intel Capital that invests in outside companies. It currently counts about 165 or so companies in its current investment portfolio. Intel can continue to try to get into the leading companies with venture funding. These efforts just usually take years to pay off.

Just some of those names are Joby, Sambanova, ZeroEyes, Buildots, AsteraLabs, Beep, Syntiant, Anyscale and too many others to count.

Intel’s investment in Mobileye Global Inc. (NASDAQ: MBLY) has seen its stock fall from over $40 at the end of 2023 to about $13 on last look. Intel recently noted that it has no plans to unload its majority interest in the autonomous driving entity — effectively refuting a prior Bloomberg report that Intel was exploring the sale of part of its stake. That said, Mobileye announced in August that it will “end the internal development of next-generation frequency modulated continuous wave (FMCW) lidars for use in autonomous and highly automated driving systems” and that the lidar R&D unit wind-down would be by the end of this year and impact about 100 employees.

HIGH TACTICAL INVESTMENT RISK

Taking a tactical investment into Intel has been painful for anyone thinking it couldn’t get worse in 2024. It has managed to get worse each quarter, and Intel may be booted out of the Dow Jones Industrial Average after a 25-year inclusion. Buying stock may need to be hedged with also buying Put options. Buying options is a risk of the entire premium — but investors and traders can make short-term bets in speculative out-of-the-money calls with whatever amount they are willing to lose. That last trade in options will be all-or-none and will feel leveraged, but it can also limit any potential downside to a few hundred dollars (or even less) for retain investors wanting to throw some risk capital on a “just in case” basis.

Tactical Bulls always reminds its readers and all investors that they need to do their own research and due diligence before investing in or speculating on special situations. No single analyst report should ever be used as the sole reason to buy or sell a stock, nor should the opinions of other independent investors. The decision to buy, sell or hold needs to be made by each investor along with their financial advisor.

There are absolutely no assurances that profits will be made in any efforts in Intel. Buying stock options will also result in an entire loss of the premium paid if the shares do not reach the strike price(s) before the expiration date ends.

IN CONCULSION

It is no secret that Intel could use help like right now, if not yesterday! It just seems illogical to believe that Qualcomm would dare try it. Its stock did fall almost 3% to $168.92 on Friday, and it was down another 1.75% to $165.98 on Monday. Even with a market cap of $185 billion being nearly double that of Intel, the market seems to be issuing an “I just dare you to try this” warning to Qualcomm.

Shares of Intel were last seen up 3% at $22.50 on Monday. Its shares had closed up 3.3% at $21.84 on Friday’s whopping share volume of 259 million shares, after trading as high as $23.14 on the headline reaction to the rumor. It no longer matters that Intel was a $30 to $35 stock in July. It has traded under $20 in August and in September. It’s going to require a monumental effort to get this tech giant back into favor. It’s likely going to require some outside help too.

The opportunity for Intel in what’s left in 2024 and in 2025 is to right-size its operations and to continue with an independent company structure for its manufacturing. It still needs help from the outside, beyond just defense awards and Amazon. Intel could take on another large investor if it chooses and that path comes with with little regulatory scrutiny that can legally prevent it. Anyone have any companies that come to mind here?