Intel Abandons $5.4 Billion Deal After China Withholds Approval

Intel Corp. walked away from its attempt to acquire Tower Semiconductor Ltd., abandoning a $5.4 billion deal after failing to win Chinese regulatory approval in time.

(Bloomberg) — Intel Corp. walked away from its attempt to acquire Tower Semiconductor Ltd., abandoning a $5.4 billion deal after failing to win Chinese regulatory approval in time. 

Intel mutually agreed with Tower to terminate the Feb. 2022 agreement, it said in a statement Wednesday. The Israeli firm confirmed the deal was scrapped. The two companies were expected to call off the deal after failing to get Chinese approval, Bloomberg News reported earlier. 

Tower shares fell as much as 12% in Tel Aviv, the biggest intraday decline since 2020, and were down a similar amount in US premarket trading. Intel shares fell 0.1% in early trading. 

The purchase of the Israeli company was the keystone of Intel Chief Executive Officer Pat Gelsinger’s plan to get into a faster-growing part of the semiconductor industry, the foundry market dominated by Taiwan Semiconductor Manufacturing Co. Tower has a relatively small presence in that area — where companies make chips for clients on a contract basis — but has expertise and customers that Intel lacks. 

Rising tensions between China and the US have made securing approval for transactions that require the signoff from regulators in Beijing and Washington increasingly difficult, particularly those involving semiconductors, a key area of friction in the relationship.

China reviews mergers involving foreign companies with a major presence in the country, and it isn’t unusual for the process to drag on.  

Last year, DuPont de Nemours Inc. scuttled a proposed $5.2 billion acquisition of Rogers Corp. after failing to get timely clearance from Beijing. In 2018, US-based Qualcomm Inc. scrapped a $44 billion bid for Dutch chipmaker NXP Semiconductors NV after a drawn-out review by the State Administration for Market Regulation.

Read More: DuPont-Rogers Failure Puts Eye on Deals Needing China Nod

Other deals that are subject to China antitrust review include Emerson Electric Co.’s takeover of National Instruments Corp, and Broadcom Inc.’s acquisition of VMWare Inc. But these don’t involve traditional semiconductors.

Sanford C. Bernstein analyst Stacy Rasgon said the deal’s failure wouldn’t be a huge surprise given the slide in Tower’s share price, but it would be a setback for Intel.

“A failed deal does seem modestly disappointing for the prospects of Intel’s foundry efforts,” he wrote in a research note after Bloomberg’s story. “Overall Intel’s foundry efforts were never going to be easy even with Tower, but now may prove to be even more challenging without.”

When the transaction was announced, Intel said it would take “about 12 months.” As of October, the chipmaker said it was targeting the first quarter 2023, but then in March warned that the date might slip into the second quarter. 

The deadline for completing the transaction was Aug. 15 at midnight in California. Intel will pay Tower a termination fee of $353 million.

Read More: Intel to Buy Israel’s Tower Semiconductor for $5.4 Billion

While Tower is a fraction of the size of Intel and TSMC in terms of revenue, it’s active in older types of production-making chips for big customers such as Broadcom Inc. Intel’s plan was to combine plants in its network as they age with Tower’s customer list. Though they don’t require the state-of-the-art production techniques that an Intel or Nvidia Corp. processor demands, many new types of chips for markets like electric vehicles can be made in these older plants. 

Investors had already discounted the chances of the deal being completed. US-traded stock of Tower has declined 22% this year, compared with the general advance in chip stocks. It closed Tuesday at $33.78. Intel had offered $53 a share. 

–With assistance from Debby Wu and Yiqin Shen.

(Updates with background starting in sixth paragraph.)

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