Intel is set to abandon its $5.4 billion agreement to acquire Tower Semiconductor Ltd, an Israeli contract chip manufacturer, as the contract's expiration arrives on Tuesday without the anticipated regulatory endorsement from China, according to sources familiar with the matter, reported Reuters. The deal, inked by Intel in February 2022, has been unable to secure approval from Chinese regulators within the stipulated time frame specified in the contract, these sources mentioned. They preferred anonymity prior to an official declaration.
This situation underscores the extension of diplomatic tensions between the United States and China, extending into the realm of business transactions, particularly concerning tech enterprises. Issues ranging from trade disparities to intellectual property disputes and geopolitical concerns, like Taiwan's future, are manifesting in corporate dealmaking.
Intel has chosen not to engage in negotiations to extend the contract and will instead pay Tower a $353 million termination fee to dissolve the agreement, the sources reportedly revealed.
Whether the deal would have received the green light from regulators had the companies prolonged their contract for the conclusion of the review remains uncertain
A parallel instance of regulatory hurdles in China pertains to DuPont De Nemours Inc (DD.N), which abandoned its intention to acquire electronics materials manufacturer Rogers Corp for $5.2 billion the previous year due to delays in securing approval from Chinese authorities.
Intel's CEO, Pat Gelsinger, had expressed efforts to secure approval for the Tower deal from Chinese regulators. He had visited China as recently as the prior month for discussions with government officials.
However, Gelsinger had also noted that Intel was directing investments towards its foundry business, responsible for manufacturing chips for external entities, irrespective of the Tower acquisition.
In a significant move, Israeli Prime Minister Benjamin Netanyahu declared in June that Intel had committed to a $25 billion investment in a new factory in Israel, representing the largest foreign investment in the country to date.
Investor expectations surrounding the Tower deal had waned accordingly. Tower's shares on the Nasdaq closed at $33.78 on Tuesday, a marked decrease compared to the originally agreed upon $53 per share price in the deal.
During the second quarter, Intel's foundry business garnered $232 million in revenue, a substantial rise from the $57 million reported a year prior. This progress is attributable to "advanced packaging," a technique that allows Intel to merge portions of chips produced by external firms, thereby creating more potent chips.
Following two years of robust growth driven by remote work during the pandemic, demand for Intel's chips has dwindled, prompting the company to implement cost-cutting measures. Intel has committed to reducing costs by $3 billion in the ongoing year, with the ultimate objective of saving between $8 billion and $10 billion by the conclusion of 2025.