Intel plans to raise $7 billion through the bond market to finance its $16.7 billion takeover of Altera, so it can take advantage of lower rates. Bank of America and Wells Fargo & Co. are helping Intel with the debt, says Bloomberg.
Intel must have offered lucrative terms
Hints of a bond deal were dropped by CFO Stacy Smith last week, when Smith said the chip maker is planning $7 billion to $9 billion debt to fund the Altera acquisition.
In a four-part deal, Intel has already sold the biggest portion, $2 billion of 30-year, 4.9% securities, to yield 1.85 percentage points more than similar-maturity Treasuries, reports Bloomberg. Bloomberg data showed that similar maturity debt traded at 1.8% point spread in the secondary market on Tuesday.
Previously, Intel offered the 30-year bond at 2.05% points more than the Treasuries, reports Bloomberg citing a person familiar with the matter.
The chipmaker is estimated to offer a lucrative deal to appease investors in the wake of volatile market, according to CreditSights Inc analyst Erin Lyons in a research note on Wednesday. Further, reports of Intel competitor Qualcomm considering a split has further soured investors opinion of highly rated tech companies.
Nicholas Elfner, head of corporate-bond research at Breckinridge Capital Advisors, stated that underwriters floated large deals into the market for comparatively wide premiums to enable the demand for the debt to narrow the spreads before the securities price.
“What we’ve seen with these mega-corporate-bond deals is, typically, initial price talk doesn’t hold up,” he said.
UBS bullish on data center chip
UBS analysts have assigned a Buy rating to the chip maker with a price target of $33, as the bank is confident that the company’s data center chip will continue to grow 15% per year to compensate for weak PC chip sales. Furthermore, analysts are positive on Intel’s acquisition of Altera, expecting it to provide additional revenue diversity for the company in the Field-Programmable Gate Array (FPGA) market.
They also noted that after going through Altera’s proxy, it found management’s guidance for 2016 and 2017 sales to be 10-15% higher than the consensus, and earnings per share to be higher by 20-30%. However, given Intel’s size, they expect Altera to impact Intel’s EPS accretion in 2016 and 2017 by a mere $0.03-0.04 compared to UBS’s previous estimate of $0.05 and $0.11.