Intel given ultimatum over gov't grant

Pressure is mounting on Intel to set up operations in northern Israel in exchange for a NIS 1 billion grant.

Pressure is mounting on Intel Corporation (Nasdaq: INTC) to accept Israel's terms to expand its operations in the country in exchange for a NIS 1 billion grant. Even as Intel has delayed its decision on its new fab and its executives are scrupulously staying silent, the Ministry of Finance and Ministry of Industry, Trade and Labor are losing patience. Officials from the two ministries, together with the Investment Promotion Center have given Intel an ultimatum to respond by early March.

A senior government official told "Globes" today that if Intel does not respond by the deadline, the offer for the loan will expire, and the government reserves the right to use the money for grants to another multinational, provided that it accepts the conditions to set up an R&D center in the Galilee.

The Ministries of Finance and Industry have been waiting for months for Intel to decide, after saying in mid-2011 that it was interested in receiving a $600 million grant. Intel believes that it deserves such a large grant in exchange for investing $5 billion to upgrade its fab in Kiryat Gat to make the most advanced of its kind in the world.

The ministries decided to partly accept Intel's request, agreeing to a NIS 1 billion grant, most of which would be used to build a fab and assembly plant in Beit She'an. The ministries said that since Intel began operating in Israel (in 1964), it has been the beneficiary of many government grants, and that the investment in Kiryat Gat has fulfilled its purpose.

Intel was due to reply to the government's offer by the end of 2011, amid indications that the company was considering focusing its multibillion dollar investment in Ireland, rather than Israel. Less than a month ago, Intel said that, due to the global economic crisis, it was postponing a decision on the matter until the second quarter of 2012. In response, the Ministries of Finance and Industry joint work team softened its terms for granting Intel's grant. Instead of requiring it to build an assembly fab in Beit She'an, the ministries would be satisfied with the establishment of a development center in a Galilee town, including an Arab town, to create hundreds of local jobs. The new offer came after Intel refused to commit to building a fab in Beit She'an.

The government official told "Globes", "This is a red line as far as we're concerned. We're insisting on an explicit commitment by Intel to invest in the north. Israel has billions of shekels to encourage a multinational to come and invest here, and build an R&D center. If Intel doesn’t want the money, we'll offer it to any company that is prepared to honor the money and make an attractive offer. We'll publish an international tender."

"The battle between us and Intel is fierce," Minister of Industry, Trade and Labor Shalom Simhon told the Knesset Economic Affairs Committee today. "We think that it should open a large fab in the north, in addition to expanding its operations in Kiryat Gat, in exchange for the government grant."

Simhon added that the size of Intel's proposed investment in Kiryat Gat should be respected, noting, "It isn't every day that a multinational invests NIS 20 billion in Israel. It's no coincidence."

Multinationals mentioned by the Ministries of Finance and Industry as alternatives for the Intel grant include Dell Inc. (Nasdaq: DELL), Oracle Corporation (Nasdaq: ORCL), Amdocs Ltd. (NYSE: DOX), and Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA). It cannot be ruled out that Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT) might also share in the proceeds if it promises to expand its operations in the north. Officials calculate that the grant money could be shared among several companies to create over 1,000 jobs in the north between them.

Published by Globes [online], Israel business news - www.globes-online.com - on January 24, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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