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Intel announced on Wednesday the abandonment of its attempt to purchase Israeli chipmaker Tower Semiconductor due to a failure to obtain regulatory approval in China for the $5.4 billion deal.
Two individuals familiar with the matter revealed that the Chinese competition regulator had not yet approved the acquisition. Beijing officials have been closely reviewing transactions that could give more control over the semiconductor supply chain to Washington.
A deal of this magnitude requires approval from regulators worldwide, including China. A source close to the Chinese regulators stated that it is “extremely difficult” to obtain Beijing’s approval for a US company to acquire a vital chip fabrication plant, especially considering the tough export controls imposed by Washington and its allies on the Chinese chip industry.
“If a Chinese foundry wanted to buy Tower Semiconductor today, would regulators from other countries give us the green light?” questioned the source.
The multibillion-dollar deal, like several other semiconductor transactions, has faced delays in Beijing. The merger review took longer than anticipated by executives. When the deal was announced in February of last year, Intel expected its closure within 12 months, but later admitted to delays.
As a result of the deal termination, Intel will pay Tower a fee of $353 million. In a statement, Tower expressed that it had “mutually agreed” with Intel to cancel the transaction.
Intel’s CEO, Pat Gelsinger, mentioned in April that he had discussed the transactions with regulators during a trip to China. He assured investors that they were actively working to close the deal but did not provide a specific timeline. August 15 was the deadline for closing the deal.
In recent months, there were increasing doubts among investors regarding the completion of the Tower acquisition. The Israeli company’s US-listed shares consistently traded below the proposed purchase price of $53 per share, closing at a 36% discount to that price on Tuesday.
At midday on Wednesday in Tel Aviv, the company’s Israeli-listed shares dropped by 9%.
The collapse of this deal follows Intel’s decision this year to increase its investment in Israel. The company has committed to spending an additional $15 billion to expand its facilities in Kiryat Gat.
This project is part of Intel’s plan to make significant investments, including a $20 billion site in Germany and others in the US and Ireland, in order to enhance its competitiveness against Taiwan’s TSMC.
For Intel, the failure of this deal is a setback in its efforts to manufacture chips for other companies and catch up with industry leaders TSMC and Samsung. While Tower’s chip plants may not have been cutting edge, the company served numerous customers and had a culture focused on serving chip design groups, which Intel lacks.
This situation also highlights how tensions between Washington and Beijing are impacting Intel in China, its largest market that accounted for 27% of its $63 billion in sales last year.
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