Intel, Tower Semiconductor terminate $5.4 billion deal over regulatory approval issues

Intel and Israeli contract chipmaker Tower Semiconductor's proposed $5.4 billion deal has been terminated mutually. The deal was terminated after the companies were unable to get timely regulatory approvals, the companies said.

Meanwhile, the shares Tower Semiconductor fell about 9 percent in the United States as well as Tel Aviv.

As per the company's statement, Intel will pay a termination fee of $353 million to Tower Semiconductor. The company had last year decided to buy Tower. Currently, the companies have not provided any details on the regulatory approvals, as reported by Reuters.

The news of the deal termination was first reported by Reuters. It had reported late on Tuesday that Intel would drop the deal once their contract expired without regulatory approval from China.

"After careful consideration and thorough discussions and having received no indications regarding certain required regulatory approval, both parties have agreed to terminate their merger agreement having passed the August 15, 2023 outside date," Tower Semiconductor said in a statement.

Pat Gelsinger, the chief executive of Intel, stated that he was working to get the Tower acquisition approved by Chinese regulators and had just recently traveled there to speak with government representatives. He also added that Intel was investing in its foundry division, which produces chips for other businesses, irrespective of the Tower deal.

This development underscores how tensions between the United States and China over issues including trade, intellectual property and the future of Taiwan are spilling over into corporate deal making, especially when it comes to technology companies.

A similar situation happened last year, when DuPont De Nemours Inc had scrapped its $5.2 billion deal to buy electronics materials maker Rogers Corp after delays in securing approval from Chinese regulators. 

In June this year, Israel Prime Minister Benjamin Netanyahu had announced that Intel had agreed to spend $25 billion on a new factory in Israel, the largest-ever international investment in the country. The factory in Kiryat Gat is due to open in 2027, to operate through 2035 at least and to employ thousands of people, Israel's Finance Ministry had said. As per the ministry, under the deal Intel would pay a 7.5 percent tax rate, up from the current 5 percent.

In the second quarter, Intel's foundry business reported revenue of $232 million, up from $57 million a year earlier, as it made advances on rivals such as industry leader Taiwan Semiconductor Manufacturing Co.

The rise in foundry sales came from "advanced packaging," a process in which Intel can combine pieces of chips made by another company to create a more powerful chip. Demand for Intel's chips has cooled after two years of strong growth driven by remote work during the pandemic, leading the chipmaker to turn to cost cuts. It has committed to trimming $3 billion in costs this year, with an aim of saving between $8 billion and $10 billion by the end of 2025.

(With inputs from Reuters)