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Intel cancels $5.4 billion tower deal without Chinese approval

(Bloomberg) — Intel is expected to cancel its planned $5.4 billion acquisition of Tower Semiconductor Ltd. With time running out to win regulatory approval, according to people familiar with the matter.

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The deadline for the deal, announced in early 2022, is midnight California time on August 15, said the people, who asked not to be identified because the details are private, and the companies don’t expect to get approval from China by then.

A representative for Intel declined to comment on the approaching deadline, while Tower did not immediately respond to a request for comment.

The purchase of the Israeli company was part of Intel CEO Pat Gelsinger’s plan to enter a faster-growing segment of the semiconductor industry, the foundry market dominated by Taiwan Semiconductor Manufacturing Co. The companies make chips for customers on a contract basis — but they have expertise and customers that Intel lacks.

Read more: Intel Buys Israeli Semiconductor Tower for $5.4 Billion

Investors had already reduced the chances of the deal going through. Tower’s US-traded shares are down 22% this year, even as stocks in the semiconductor industry have gained. It closed Tuesday at $33.78 — well below the $53 per share Intel was offering.

Stacy Rasgon, an analyst at Sanford C. Bernstein, said the deal’s failure wouldn’t be a huge surprise given Tower’s share price drop, but it would be a setback for Intel.

“The failed deal seems somewhat disappointing for the prospects for Intel’s foundry effort,” he wrote in a research note after the Bloomberg story. “Overall, Intel’s foundry effort will never be easy even with Tower, but now it may be more difficult without it.”

When the deal was first announced in February last year, Intel said it would take “about 12 months.” Starting in October, the chip maker said it was targeting the first quarter of 2023, but warned in March that the date could be pushed back into the second quarter.

Rising tensions between China and the United States have made it difficult to get approval for transactions that require approval from regulators in Beijing and Washington, particularly when deals involve semiconductors, a key area of ​​friction.

Tower is a fraction of the size of Intel and TSMC in terms of revenue, but it makes components for big clients like Broadcom Inc. Intel’s plan was to merge the factories with Tower and take advantage of its client list. Although tower-shaped chips do not require the modern production technologies that an Intel or Nvidia Corp. processor requires, they do serve growing markets such as electric vehicles.

— with assistance from Peter Elstrom.

(Updates with analyst comment from sixth paragraph)

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