Intel Abandons $5.4 Billion Transaction Following China Regulatory Review Postponement

NEW YORK: Intel Corp abandoned its $5.4 billion deal to buy Israeli chipmaker Tower Semiconductor Ltd after their merger deal fell through without approval from Chinese authorities.

The US-listed shares of the Israeli company fell about 11% in premarket trading.

Intel, which had decided to buy Tower last year, will pay the latter a termination fee of $353 million, the company said in a statement.

“After careful consideration and in-depth discussions, and without receiving any indication of certain required regulatory approvals, both parties have agreed to terminate their merger agreement after the August 15, 2023 deadline,” Tower Semiconductor said in a statement.

The development highlights how tensions between the United States and China over issues such as trade, intellectual property rights and the future of Taiwan are spilling over into corporate deals, especially technology companies.

Last year, DuPont De Nemours Inc abandoned its $5.2 billion deal to buy electronic materials maker Rogers Corp because of delays in getting approval from Chinese regulators.

Intel CEO Pat Gelsinger had said he was trying to get the Tower deal approved by Chinese regulators and visited the country last month to meet with government officials.

But Gelsinger also said Intel will invest in its foundry business, which makes chips for other companies, regardless of the Tower deal.

Israeli Prime Minister Benjamin Netanyahu announced in June that Intel had agreed to a new $25 billion factory in Israel, the largest ever international investment in the country.

As a result, investors had lost hope in the Tower deal. Tower’s Nasdaq-listed shares ended trading at $33.78 on Tuesday, a sharp discount to the $53 per share transaction price.

Intel’s foundry business posted second-quarter revenue of $232 million, up from $57 million a year earlier, as it overtook rivals such as industry leader Taiwan Semiconductor Manufacturing Co.

The increase in foundry sales was due to “advanced packaging,” a process where Intel can combine 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, which has caused the chipmaker to switch to cost cutting. It has committed to cutting $3 billion in expenses this year, with a goal of saving $8 billion to $10 billion by the end of 2025.