How the Mobileye Acquisition Could Impact Intel’s Earnings

Intel (INTC) is acquiring Mobileye (MBLY) for a hefty premium compared to MBLY’s earnings.

Puja Tayal - Author

Mar. 17 2017, Updated 6:05 p.m. ET

uploads///A_Semiconductors_INTC cash dewbt position post MBLY merger

What Intel’s earnings could look like after the Mobileye acquisition

Intel (INTC) is acquiring Mobileye (MBLY) for a hefty premium compared to MBLY’s earnings. A $15.3 billion price tag for a business with an annual revenue of $358.0 million could be considered desperation on Intel’s part in order to make it in the autonomous car market. Its acquisition of Altera had a price tag of $16.7 billion for a business with an annual revenue of $1.5 billion.

Although the Mobileye acquisition would be immediately accretive to Intel’s earnings, it won’t make any major difference in Intel’s revenue or profits in billions of dollars.

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Intel could report Mobileye’s earnings under its IoTG (Internet of Things Group), or it might create a separate automotive group. The current sizes of the two companies’ automotive businesses aren’t big enough to be separate business groups. So there’s a high probability that Intel might report Mobileye’s earnings under IoTG. That would increase IoTG’s revenue by 30.0% YoY (year-over-year) to about $3.5 billion in fiscal 2017.

Intel’s cash and debt position after the merger

At the end of fiscal 4Q16, Intel’s cash reserves were $17.0 billion against its long-term debt of $25.1 billion. That resulted in a net debt of $12.4 billion. In fiscal 2017, Intel should receive $3.1 billion in cash from the spin-off of Intel Security, which it might use to repay $3.5 billion of debt that’s maturing in 2017. That would reduce its long-term debt to $21.6 billion.

However, according to new information, Intel has decided to use its offshore cash to fund the acquisition of Mobileye, a company based in Israel (EIS). It might have to raise new debt to fund the all-cash deal of $15.3 billion, or $14.7 billion after deducting its cash reserves.

Intel earns an annual operating cash flow of around $22.0 billion. It has committed to spend $12.0 billion in capital expenditure in fiscal 2017, leaving it with a free cash flow of $10.0 billion. It plans to spend $5.0 billion in dividend payments and might use the remaining $5.0 billion to fund the Mobileye acquisition.

Since Intel is funding 80.0% of the deal, or $11.8 billion, from its cash reserves, it would have to raise new debt of $3.0 billion. That would increase its long-term debt to $24.6 billion and reduce its cash reserves to $10.2 billion.

Next, let’s see what Mobileye is bringing to the table in the merger.


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