Intel cancels $5.4 billion Tower deal due to China review delay – sources
Intel cancels $5.4 billion Tower deal due to China review delay - sources
China’s Regulatory Approval Delays Intel’s Acquisition of Tower Semiconductor
New York, August 15 – Intel Corp has announced that it will drop its $5.4 billion deal to acquire Israeli contract chipmaker Tower Semiconductor Ltd. The deal, which was signed in February 2022, failed to secure regulatory approval from China. As a result, the contract will expire without the necessary clearance. Intel’s failure to meet the regulatory requirements reflects the ongoing tensions between the United States and China, particularly in the realm of technology companies.
The acquisition faced challenges as China’s regulatory environment became increasingly stringent. Issues such as trade disputes, intellectual property rights, and the delicate situation concerning Taiwan have spilled over into corporate dealmaking. Technology acquisitions in particular have been subjected to thorough reviews by regulatory authorities, impacting the completion of such agreements.
Intel has decided against negotiating an extension of the contract with Tower Semiconductor. Instead, the company will pay a break-up fee of $353 million to walk away from the deal. The specific conditions surrounding the deal’s approval, had the companies extended the contract and waited for the review’s completion, remain unclear.
While Intel’s Chief Executive, Pat Gelsinger, had made efforts to have the Tower Semiconductor deal approved by Chinese regulators, the company is also heavily investing in its foundry business. Intel’s foundry business focuses on manufacturing chips for other companies, irrespective of the outcome of the Tower Semiconductor acquisition. This investment diversification aligns with Intel’s strategy to remain competitive in the market.
Despite the setback, Intel continues to make strides in its foundry business. In the second quarter, the company’s foundry business reported a significant increase in revenue to $232 million, up from $57 million in the previous year. Advanced packaging, a process that allows Intel to combine chips from different companies to create more powerful chips, played a key role in driving this growth. Intel’s success in this area has positioned it as a strong competitor to industry leader Taiwan Semiconductor Manufacturing Co.
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It is worth noting that the demand for Intel’s chips has cooled down after experiencing significant growth during the pandemic-induced shift to remote work. In response, the chipmaker has implemented cost-cutting measures, with a goal of saving between $8 billion and $10 billion by the end of 2025. This commitment demonstrates Intel’s determination to navigate the changing market landscape and leverage their strengths in diverse business areas.
In addition, Intel’s commitment to the Israeli market remains strong. Earlier this year, the company announced a $25 billion investment to build a new factory in Israel, making it the largest-ever international investment in the country. This move further solidifies Intel’s presence in the global semiconductor industry, ensuring its long-term competitiveness.
The failure to secure regulatory approval for the Tower Semiconductor deal has had a significant impact on investor confidence. Tower’s Nasdaq-listed shares ended trading on Tuesday at $33.78, significantly lower than the original deal price of $53 per share. This reaction highlights the importance of regulatory considerations in the success or failure of major corporate acquisitions.
It remains to be seen how Intel will navigate future acquisitions and regulatory challenges. However, the company’s commitment to its foundry business, as well as its ongoing investments in the Israeli market, indicate that Intel is actively pursuing strategies to maintain its position as a global leader in the technology and semiconductor industry.
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