Intel Cancels $5.4b Deal After China Holds Up Approval

Intel Corp. has withdrawn from its endeavor to acquire Tower Semiconductor Ltd., as the $5.4 billion deal faltered due to a lack of timely Chinese regulatory approval.

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In an official statement on Wednesday, Intel announced the mutual agreement with Tower to terminate the agreement reached in February 2022. The Israeli firm confirmed the cancellation of the deal, which had been anticipated following their inability to secure Chinese approval, as earlier reported by Bloomberg News.

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Following this development, Tower's shares plummeted by as much as 12% on the Tel Aviv Stock Exchange, marking the most significant intraday decline since 2020. In New York, Tower's U.S.-traded shares recorded an 8.5% decrease on Wednesday morning. Correspondingly, Intel's shares declined by 1%.

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The proposed acquisition of Tower Semiconductor was a pivotal component of Intel CEO Pat Gelsinger's strategy to venture into the rapidly expanding segment of the semiconductor industry, specifically the foundry market, which is largely dominated by Taiwan Semiconductor Manufacturing Co. While Tower holds a relatively modest position in this sector, Intel was drawn to its expertise and client base, areas where Intel sought augmentation.

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Amidst growing tensions between China and the U.S., gaining regulatory approval for transactions requiring consent from both Beijing and Washington has become increasingly challenging. This is particularly pronounced for transactions involving semiconductors, a domain that has been a significant point of contention in the bilateral relationship.

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China closely scrutinizes mergers involving foreign corporations with a substantial presence within its borders, a process often marked by prolonged deliberations. Instances such as DuPont de Nemours Inc.'s failed $5.2 billion acquisition of Rogers Corp. in the previous year and U.S.-based Qualcomm Inc.'s $44 billion bid for Dutch chipmaker NXP Semiconductors NV in 2018, underscore the intricate nature of securing Chinese approval.

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Sanford C. Bernstein analyst Stacy Rasgon acknowledged that the failure of this deal is not entirely surprising given Tower's recent decline in share price. However, he noted that the fallout represents a setback for Intel's aspirations.

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When the transaction was initially announced, Intel projected a timeline of "about 12 months" for its completion. By October, the company aimed for the first quarter of 2023, but in March, Intel indicated a potential delay until the second quarter.

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The transaction's completion deadline was set for August 15, midnight in California. As part of the termination, Intel will pay Tower a fee of $353 million.

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Despite Tower's revenue being a fraction of the size of Intel and TSMC, the company plays a role in older chip production for significant clients, such as Broadcom Inc. Intel's strategic intent was to integrate Tower's client list with its aging plant network, capitalizing on the older plants' capacity to produce new types of chips for burgeoning markets like electric vehicles.

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