Intel (INTC.O) and Tower Semiconductor (TSEM.TA), an Israeli contract chipmaker, have officially terminated their proposed $5.4 billion deal due to their inability to secure timely regulatory approvals. The companies jointly announced the termination on Wednesday, signaling an unfortunate end to their ambitious merger plans.
The decision had an immediate impact on Tower Semiconductor’s stock value, as shares of the Israeli company experienced a sharp decline of around 9% in both the United States and Tel Aviv.
Intel initiated the acquisition bid for Tower Semiconductor last year, aiming to bolster its position in the chip manufacturing sector. As a part of the termination agreement, Intel will compensate Tower with a termination fee amounting to $353 million, according to a statement issued by Intel.
While specifics regarding the regulatory approvals were not disclosed by either company, a report from Techgenez on Tuesday indicated that Intel would abandon the deal if the contract expired without receiving regulatory clearance from China.
In an official statement, Tower Semiconductor explained, “After careful consideration and thorough discussions and having received no indications regarding certain required regulatory approvals, both parties have agreed to terminate their merger agreement having passed the August 15, 2023, outside date.”
This development highlights how geopolitical tensions, particularly between the United States and China, have started influencing corporate mergers and acquisitions. Issues encompassing trade, intellectual property, and international relations are evidently spilling into the realm of technology-related dealmaking.
Notably, this isn’t the first instance of a high-stakes deal being scrapped due to regulatory hurdles involving China. Last year, DuPont De Nemours Inc. (DD.N) abandoned its $5.2 billion deal to acquire electronics materials maker Rogers Corp. (ROG.N) after encountering delays in securing approval from Chinese regulatory bodies.
Intel’s Chief Executive, Pat Gelsinger, had been actively pursuing the Tower deal’s approval from Chinese regulators. He visited China as recently as the previous month to engage with government officials in this regard. However, Gelsinger also emphasized that Intel remained committed to its foundry business, which is responsible for producing chips for other companies, irrespective of the outcome of the Tower deal.
In a separate development, Israeli Prime Minister Benjamin Netanyahu disclosed in June that Intel had committed to investing $25 billion in a new factory in Israel, marking the largest international investment in the country to date.
Market sentiment had already shifted away from optimism for the Tower deal. Tower Semiconductor’s Nasdaq-listed shares closed trading at $33.78 on Tuesday, a notable drop from the originally proposed deal price of $53 per share.
Intel’s foundry business reported a substantial increase in revenue in the second quarter, reaching $232 million compared to $57 million from the previous year. This growth was attributed to “advanced packaging,” a technology that allows Intel to integrate parts of chips made by other manufacturers into a more powerful chip.
Facing reduced demand for its chips following a period of robust growth during the pandemic-induced remote work era, Intel has been implementing cost-cutting measures. The company aims to achieve cost savings of $3 billion in the current year, with a long-term goal of between $8 billion and $10 billion by the end of 2025.