Intel cancels $5.4 billion Tower takeover

US chip giant Intel has terminated its planned acquisition of Israeli chip manufacturer Tower Semiconductor, citing delays to obtaining the necessary regulatory approvals.

The finger is being pointed firmly at China.

According to Reuters, Chinese antitrust authorities were slow to clear the $5.4 billion deal, causing Intel and Tower to miss deadlines set out in the takeover agreement. Intel CEO Pat Gelsinger reportedly met personally with Chinese officials, visiting them last month in an effort to get the deal over the line.

However, the acquisition seems to have fallen victim to the US-China trade war, as each side tries to undermine the other’s efforts to control the production and supply of those all-important semiconductors.

Rather than extend the deadline, Intel and Tower have opted to go their separate ways. Under the terms of the deal, Intel has agreed to pay Tower a $353 million termination fee.

Its collapse is a setback for Intel’s plan to expand its manufacturing capacity with the formation in 2021 of Intel Foundry Services (IFS), under its IDM 2.0 strategy.

Tower is a contract manufacturer of analogue semiconductors, supplying customers in the mobile, automotive and power industries – among others – from facilities in the US and Asia. When its acquisition by Intel was announced in February 2022, Gelsinger said it would advance his company’s goal of becoming a major global provider of foundry capacity.

Despite the setback, Gelsinger and his opposite number at Tower, Russell Ellwanger, gave fairly sanguine-sounding remarks in their respective press releases.

“Our foundry efforts are critical to unlocking the full potential of IDM 2.0, and we continue to drive forward on all facets of our strategy,” said Gelsinger. “We are executing well on our roadmap to regain transistor performance and power performance leadership by 2025, building momentum with customers and the broader ecosystem and investing to deliver the geographically diverse and resilient manufacturing footprint the world needs.”

He added that Intel’s “respect for Tower has only grown through this process,” and that the two companies will explore opportunities to work together in future.

“Tower was very excited to join Intel to enable Pat Gelsinger’s vision for Intel’s foundry business. We appreciate the efforts by all parties,” said Ellwanger, in a separate statement. “During the past 18 months, we’ve made significant technological, operational, and business advancements. We are well positioned to continue to drive our strategic priorities and short, mid, and long-term tactics with a continued focus on top and bottom-line growth.”

From Intel’s perspective, a $353 million breakup fee is pocket change for a company that is spending tens of billions – with help from subsidies – on new sites all over Europe, the US, and even Tower’s home market Israel.

As for Tower, its most recent financial results showed that revenue and earnings for the second quarter were both down compared to the previous year, so it is either confident it will return to growth or that another suitor will emerge.

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