Mobileye investors fear Intel will jettison shares

Mobileye CEO Amnon Shashua with Intel CEO Pat Gelsinger
Mobileye CEO Amnon Shashua with Intel CEO Pat Gelsinger

Intel's troubles are weighing on the Israeli driving assistance systems company. Globes examines if the concerns are justified?

The share price of advanced driving assistance systems (ADAS) company Mobileye Global Inc. (Nasdaq: MBLY) has been sharply volatile in recent days following reports and speculation about parent company Intel Corp. (Nasdaq: INTC), which holds an 88% stake in the Israeli company.

The chipmaker's troubles have continued for some and last week Intel CEO Pat Gelsinger announced a split between its development and production divisions. Then there were reports that Qualcomm is interested in acquiring Intel and that Apollo Global Management had expressed interest in investing $5 billion in Intel. Bank of America analysts said last week, "There are more questions than answers" about the expected split and kept its recommendation for Intel at "Underperform."

Even before Mobileye's share price volatility over the 'rumblings' at the parent company, which does not directly affect its activities, the share price had already fallen to a new low on reports that Intel was considering selling its holdings. Last week, the share price jumped after Intel declared that it had no plans to divest its majority stake and that it believes in the future of autonomous driving and the unique role that Mobileye has to play in the sector.

Meanwhile, it seems that investors still await more certainty about Mobileye's future, as a derivative of Intel's fate - and in the capital market, which is known to not like uncertainty, this is of course reflected in the stock, which has fallen by 41% since the IPO two years ago and by 72% since the beginning of this year.

Yesterday, Mobileye's share price jumped 6.16%, but it is doubtful that this is a sign of future stability and investors' relaxation. Apparently the stock rose due to the stimulus plan for the Chinese economy that was announced yesterday, which included measures designed to support investments in the country. Although the plan did not specifically affect Mobileye, there are those in the market who interpreted it as signaling a more lenient trend for foreign companies operating in China, which could support the future of autonomous vehicles and Mobileye.

"Bottom line, Intel owns 88% of Mobileye and is in a bad situation," says Omri Efroni, an analyst at Oppenheimer who covers the stock. "Intel will be forced to sell divisions or make drastic organizational changes, and investors have been afraid that it would sell Mobileye stock tranches on the market, which put pressure on the stock."

However, Efroni believes that Intel will not sell: "Mobileye is trading today with an enterprise value (EV) of about $9 billion. Even if Intel sells 20% of the share capital, it is not an amount that is relevant for them, they need much more. Beyond that, according to the arrangement with the regulator, if Intel continues to hold over 80% of Mobileye for a certain period, it will have a tax benefit that it is unlikely that it will give up." In any case, Efroni estimates that even if Intel sells shares, it will not be in market deals but in a package for a large investor, which will have less impact on Mobileye's share price.

Bank Leumi analyst on overseas stocks Nir Orgad also believes that Intel won't be enthusiastic about selling Mobileye shares now. He says, "It bought the company for $15 billion (in 2017) and today Mobileye is worth less, so it's reasonable that Intel will wait for a time when the valuation is higher. Intel has Altera, a company which it has already split off ahead of an IPO or sale, and in my opinion that will be the first option for a sale. Mobileye at this valuation would be the last in the order of priorities to realize."

He adds, "There is still natural pressure on Mobileye's share over the question of who will be the controlling owner."

The regulator will block deals

As mentioned, one of the most recent reports dealt with the fact that private equity fund Apollo, which has already invested in Intel in the past, could inject $5 billion into the chipmaker. Orgad says that in such a case the pressure on Intel's cash would decline, and the urgency to sell Mobileye shares would will decrease.

A scenario in which chip development rival Qualcomm acquires Intel - seems unlikely in the eyes of the two analysts. According to Orgad, "Obtaining regulatory approvals for such a deal might take a long time. In the past, Qualcomm tried to acquire NXP and did not receive approval from China. This time, when both companies are US giants, seeing the Chinese regulator approve a deal is verging on improbable. Even in the US, to be objections to the deal, on the grounds of harming competition."

In his estimation, Qualcomm could possibly acquire parts of Intel. He mentions that Qualcomm competes with Mobileye and is trying to enter the autonomous vehicle market, so even in this case there could be difficulty with the regulator in the acquisition. A few months ago, Qualcomm canceled the acquisition of the Israeli company Autotalks after it did not receive regulatory approvals.

The future is beginning to become clear

Regarding the Intel split, Efroni thinks that it depends on the character of the split, although anyway Mobileye will remain a publicly traded company with the controlling core in the hands of Intel.

So when any scenario concerning the future of Intel (split, sale, investment) is an uncertain move and one that will take a long time, it seems that the most likely scenario at the moment is continued volatility in Mobileye's stock. At the same time, Efroni mentions that Mobileye has its own problems, although he sees possibility for improvement. "The electric vehicle market today is almost at its lowest point. There is a little more clarity with the manufacturers, who present future plans, so that development can be accelerated. The lowering of interest rates will also support Mobileye visibility for the future."

Oppenheimer sets a price target price of $24 per share, which currently trades at $12.30, reflecting a market cap of $10.625 billion.

Published by Globes, Israel business news - en.globes.co.il - on September 25, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

Mobileye CEO Amnon Shashua with Intel CEO Pat Gelsinger
Mobileye CEO Amnon Shashua with Intel CEO Pat Gelsinger
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