In a significant setback for US chipmaker Intel’s (INTC.O) ambitions to expand its manufacturing capacity and semiconductor capabilities, it has terminated its proposed $5.4 billion Deal with Israeli contract chipmaker Tower Semiconductor (TSEM & TASE: TSEM), blaming its inability to get timely regulatory approvals. Specifically, according to a statement from both companies, the company said it could not get approval from Chinese authorities.
The Deal, inked in February 2022, had been aimed at strengthening Intel’s position in the “foundry” market – where companies manufacture chips for clients on a contractual basis and compete with Taiwanese rival TSMC (TSM.T). The acquisition was one of the initiatives spearheaded by Intel CEO Pat Gelsinger, who had pushed the company to reduce its dependence on third-party manufacturers.
But the company struggled with the acquisition, and Reuters reported last year that the contract was nearing its expiration date without China’s approval. The failure to secure Chinese approval also reflects growing tensions between the United States and China over issues such as trade disparities, intellectual property disputes, and geopolitical concerns like the future of Taiwan.
In a statement on Wednesday, Intel said it had chosen not to negotiate with Tower to extend its contract and will pay a termination fee of $353 million to the latter. Intel, whose share price fell about 9% in the United States and Tel Aviv on the news of the terminated Deal, will also cover any expenses related to the transaction.
“It is important to remember that the Intel-Tower deal was a complex and challenging project for both organizations. While we are disappointed that we could not complete the transaction, we remain committed to our strategic goals and advancing the Intel foundry business,” the company added.
Based in Tel Aviv, Tower has a strong presence in the analog semiconductor solutions sector, and its expertise in radio frequency (RF), power, silicon-germanium (SiGe), and industrial sensors complements Intel’s strengths in these areas. Tower has also built up a strong IP and electronic design automation (EDA) partnership base.
The companies expect to close the Deal in approximately 12 months, subject to customary closing conditions. Until then, both organizations will run independently and serve their customers.
This communication contains forward-looking statements regarding the financial impact of the proposed transaction on Tower, Intel, and their respective businesses. The forward-looking statements are based on management’s current beliefs and expectations. They are subject to several risks and uncertainties, including the risk that the regulatory process will not be completed promptly or at all. These include the risks discussed in the company’s Form 10-K filed with the Securities and Exchange Commission on December 21, 2017, and in other public filings made by the company.
Goldman Sachs & Co LLC and Skadden, Arps, Slate, Meagher & Flom LLP served as financial advisors to Intel, while Latham & Watkins LLP and Yigal Arnon & Co served as legal advisors to Tower.
