Intel to drop $5.4bn tower deal after China review delayed: sources

NEW YORK, Aug 15 (Reuters) – Intel Corp (INTC.O) to abandon its $5.4 billion deal to acquire Israeli contract chipmaker Tower Semiconductor Ltd (TSEM.TA) once his contract expires later Tuesday without regulatory approval from China, according to people familiar with the matter.

Intel, which signed the deal to buy Tower in February 2022, did not get approval from Chinese regulators for the acquisition on time as required by the contract, said the sources, who requested anonymity ahead of an official announcement.

The 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 deals, especially when it comes to technology companies.

Intel does not plan to negotiate a contract extension and will instead pay Tower a break fee of $353 million to pull out, the sources added.

It was unclear whether regulators would have approved the deal if the companies had extended their contract and waited for the review to be completed.

Intel and Tower declined to comment. Representatives for the State Administration for Market Regulation, China’s antitrust regulator, could not immediately be reached for comment.

Last year, DuPont De Nemours Inc. (DD.N) canceled his $5.2 billion deal to buy electronic materials maker Rogers Corp (ROG.N) after delays in getting approval from Chinese regulators.

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

But Gelsinger also said that Intel was investing in its foundry business, which makes chips for other companies, independent of the Tower deal.

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

As a result, investors had given up hope in the Tower deal. Tower’s Nasdaq-listed shares ended up trading at $33.78 on Tuesday, a steep discount from the transaction price of $53 per share.

In the second quarter, Intel’s foundry business reported revenue of $232 million, up from $57 million a year earlier, as it made gains on rivals such as industry leader Taiwan Semiconductor Manufacturing Co. (2330.TW).

The increase 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 chips has cooled after two years of strong growth fueled by remote work during the pandemic, prompting the chipmaker to cut costs. It has committed to cutting $3 billion in costs this year, with a goal of saving between $8 billion and $10 billion by the end of 2025.

Reporting from Anirban Sen in New York; Additional reporting by Max Cherney in San Francisco; Edited by Jamie Freed

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