Corporate America's newest activist investor: Donald Trump

Corporate America has built up defences against the likes of Carl Icahn, Nelson Peltz and other corporate raiders who have rattled the cages of CEOs, pushing for higher stock prices. Now companies have a new investor to worry about: the president of the United States.

President Donald Trump has inserted the government into US companies in extraordinary ways, including taking a stake in US Steel and pushing for a cut of Nvidia's and Advanced Micro Devices' revenue from China.

Last month, the Pentagon said it was taking a 15 per cent stake in MP Materials, a large American miner of rare earths.

And Friday, Intel agreed to allow the U.S. government to take a 10% stake in its business, worth $8.9 billion.

These developments could herald a shift from America's vaunted free-market system to one that resembles, at least in some corners, a form of state-managed capitalism more frequently seen in Europe and, to a different degree, China and Russia, say lawyers, bankers and academics steeped in the history of hostile takeovers and international business.

And the actions are sending Wall Street's bankers and lawyers scrambling to help companies come up with a playbook to defend against or least find ways to mollify Trump.

"Virtually every company I've talked to which is a regular recipient of subsidies or grants from the government is concerned about this right now," Kai Liekefett, co-chair of the corporate defense practice at the law firm Sidley Austin, said in an interview.

The Trump administration is casting a wide net, scouring other companies that it thinks could be ripe for some form of government involvement, three people briefed on these discussions said.

The US government has inserted itself in corporate America before. The Obama administration took stakes in banks and auto companies after the 2008 financial crisis, and both the Obama and Biden administrations used government subsidies to promote green technology.

But experts say Trump's push is different from -- and more aggressive than -- what the United States had seen before. The companies he is targeting are not on the cusp of collapse; nor would their demise, as in the case of the banks during the financial crisis, set off a chain of events that could lead to global economic ruin.

"America has always been wary about the line between public and private enterprise," said Jonathan Levy, a historian and professor at Sciences Po in Paris and author of "Ages of American Capitalism: A History of the United States."

"The one time it's been suspended," he added, "is in the context of war or national security interest."

The White House insists that national security is indeed driving its investments and disputed the notion that taking these stakes in critically important companies is undermining free markets.

Intel was awarded a roughly $11 billion grant as part of the CHIPS Act, a bipartisan law passed during the Biden administration aimed at making the United States less reliant on Asia for semiconductor manufacturing. Commerce Secretary Howard Lutnick has argued that by taking an equity stake, U.S. taxpayers will get the upside of any boost afforded to Intel.

"This is not a pots-and-pans company," a White House official said. "This amounts to something so critical to national security that it warrants this action."

But some of Trump's recent moves appear to be a strong break with historical precedent. In the cases of Nvidia and AMD, the Trump administration has proposed dictating the global market that these chipmakers can have access to. The two companies have promised to give 15 per cent of their revenue from China to the U.S. government in order to have the right to sell chips in that country and bypass any future U.S. restrictions.

David Sicilia, an associate professor of history emeritus at the University of Maryland, said he had never seen a time when the United States had changed its trade policy to target one or more specific companies.

"The least generous interpretation is that it's extortion for success," he said.

When discussing the Intel deal Friday, Trump said the company's CEO had "walked in wanting to keep his job, and he ended up giving us $10 billion for the United States."

Activist investors like Icahn and Peltz typically take stakes in companies struggling in the public market and then push them to make changes that will lift their share price, like selling off a division or replacing a CEO. But unlike a traditional corporate activist, Trump has not always clearly tied his calls for corporate action -- whether it be ousting a chief executive or "eating the cost of tariffs" -- to a company's returns.

For now, Intel shareholders have reacted favorably to the government's deepening involvement. Shares of Intel closed up more than 5% Friday as Trump announced that the government was taking the stake. Shares of competitors like AMD have fallen since news of the potential deal became public last week, a decline that analysts partly attribute to the expectation that the government will support Intel over other chip companies.

"If you are focused on the short term, then these sorts of deals may be beneficial, because you're going to get squeezed anyway," said Sarah Bauerle Danzman, a political scientist and an associate professor of international studies at the Hamilton Lugar School of Global and International Studies at Indiana University.

But, she cautioned, "once the government gets involved in strategic decision-making, those strategic choices are no longer driven by market considerations."

The president's growing entanglement with private enterprise also raises broader questions about a loss of protections for ordinary shareholders.

"We're used to controlling shareholders saying, 'I want to get private benefits of control. I'm also the CEO. I want to get a $56 billion compensation package.' We have ways of handling that," said Edward Rock, a professor of corporate governance at New York University.

"But if the government encouraged a company to shut down its offshoring plans, for example, we don't have doctrines in corporate law that allow us to analyze that situation."

Rebuffing Trump's demands will not be easy. Suing the government is not likely a productive path, said Liekefett, the Sidley Austin lawyer.

While the CHIPS Act does not expressly authorize the government to take equity stakes in companies receiving grants, it does have language that could be interpreted as giving the government broader authority, he said.

The current playbook for companies to avoid the threat of a government stake or other extraordinary demands, corporate advisers say, is to continue what they are already doing to stay out of Trump's crosshairs: scrubbing public websites of diversity, equity and inclusion language and making more visits to the president in Washington. (Goldman Sachs CEO David Solomon, for example, has visited Trump four times since he took office in January, according to two people with knowledge of the visits. That is an unusually high number for the bank's CEO.)

Policy experts say they worry that this type of business climate is eroding the level playing field that they believe is crucial to the country's long-term success.

"Who will want to invest in companies the administration is not backing?" Dan Ikenson, an economist and a trade expert, asked. "What will happen to promising firms that don't kiss Trump's ring?"