In a surprising turn of events, Intel Corporation is likely to terminate the $5.4 billion agreement to acquire Israeli contract chipmaker Tower Semiconductor, Reuters news report said.
The deal, which was originally inked in February 2022, will be discontinued as the contract expires on Tuesday, failing to secure the crucial regulatory approval from Chinese authorities.
The acquisition faced an uphill battle due to the lack of approval from Chinese regulators, which was a mandatory condition within the agreement. Despite the earnest efforts of Intel, the approval was not granted within the stipulated timeframe, forcing Intel’s hand to dissolve the contract. The failure to secure regulatory clearance is speculated to have stemmed from the complex geopolitical landscape and the heightened scrutiny surrounding technology-related transactions involving foreign entities.
Intel’s decision to not seek an extension of the contract reflects the semiconductor company’s intention to move forward and explore other avenues. Instead of proceeding with the acquisition, Intel will pay a substantial $353 million break-up fee to Tower Semiconductor as part of the dissolution of the agreement. This significant sum is seen as compensation for the time, resources, and opportunity costs associated with the now-abandoned deal.
Intel’s CEO, Pat Gelsinger, had been actively working towards obtaining Chinese regulatory approval for the Tower Semiconductor acquisition. He even visited China recently to engage with government officials and advocate for the deal’s clearance. However, the complexities and challenges surrounding international technology transactions, coupled with China’s increasingly stringent regulations, ultimately foiled these efforts.
Pat Gelsinger also emphasized that despite the setback with the Tower Semiconductor deal, Intel remains committed to its foundry business. This division focuses on producing chips for external companies, and Intel is poised to continue investing in its expansion and technological advancement. The termination of the Tower deal will not impede Intel’s strategic pursuits and growth ambitions.
The likely abrupt end to the Intel-Tower Semiconductor deal serves as a reminder of the intricate and multifaceted challenges that technology companies face when navigating global markets and regulatory landscapes. As Intel shifts its focus to other growth areas and continues to innovate, the industry watches closely to see how this decision shapes the company’s trajectory in the coming months and years.