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Intel scraps $5.4 billion tower deal after China reviews delays

Posted by Anirban Sen

NEW YORK (Reuters) – Intel Corp. will drop its $5.4 billion deal to acquire an Israeli contract for chip maker Tower Semiconductor once its contract expires later on Tuesday without regulatory approval from China, sources familiar with the matter said.

The sources, who asked not to be identified, said before an official announcement that Intel, which signed a deal to buy a tower in February 2022, did not get approval from Chinese regulators for the acquisition in time as required under the contract.

The development highlights how tensions between the United States and China over issues such as trade, intellectual property and the future of Taiwan carry over into deal-making with companies, particularly when it comes to technology companies.

The sources added that Intel does not plan to negotiate a contract extension and will instead pay Tower a $353 million teardown fee to leave.

It was not clear whether the regulators would have approved the deal if the companies extended their contract and waited for the review to conclude.

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

Last year, DuPont De Nemours Inc scrapped a $5.2 billion deal to buy electronic materials maker Rogers Corp after a delay in getting approval from Chinese regulators.

Intel CEO Pat Gelsinger said he’s been trying to get Chinese regulators to approve the tower deal, and he visited the country as recently as last month to meet with government officials.

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

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

As a result, investors lost hope in the tower deal. Shares of Nasdaq-listed Tower finished trading at $33.78 on Tuesday, a sharp discount to 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 pulled ahead of rivals such as industry leader Taiwan Semiconductor Manufacturing Co.

The rise 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 slumped after two years of strong growth driven by remote work during the pandemic, prompting the chipmaker to turn to cost-cutting. It has committed to cutting $3 billion in costs this year, aiming to save between $8 billion and $10 billion by the end of 2025.

(Reporting by Anirban Sen in New York; Additional reporting by Max Cherny in San Francisco; Editing by Jamie Freed)

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