Intel terminates $5.4 billion acquisition of Tower Semiconductor amid regulatory hurdles in China

Intel has announced the termination of its £4.2 billion ($5.4 billion) deal to acquire Israeli-based chip manufacturer, Tower Semiconductor. The acquisition, initially revealed in 2022, faced a major setback due to the absence of the required regulatory clearances.

Intel’s plans were officially scrapped ‘due to the inability to obtain in a timely manner the regulatory approvals required under the merger agreement’.

Despite passing antitrust reviews in both the US and Europe, the merger hit a roadblock in China, a crucial market for Intel where it generated over £13.3 billion ($17 billion) in revenue in 2022 and employed over 12,000 people.

Industry insiders suggest that China’s antitrust regulators did not finalise their decision on the transaction ahead of the mutually agreed deadline of 15 August, 2023. The acquisition of Tower by Intel was of significant importance to the semiconductor industry and anticipated by many.

The interruption by China’s regulatory board comes amidst tensions in the semiconductor industry.

An individual close to the Chinese regulators highlighted the global intricacies of such acquisitions, stating to the Financial Times that it was ‘extremely difficult’ for Beijing to approve a US company’s acquisition of essential chip fabrication plants. The source said: “If a Chinese foundry wants to buy Tower Semiconductor today, will the regulators from other countries give us the green light?”

The rules for multinational mergers in China are stringent. Deals where both participants generate revenue in China exceeding £43 million ($55 million) necessitate clearance from the Beijing-based State Administration of Market Regulation.

Adding to the repercussions of this decision, the US-listed shares of Tower Semiconductor witnessed a drop of around 11% in premarket trading.

Concluding the series of events, Tower Semiconductor released an official statement, which said: “After careful consideration and thorough discussions and having received no indications regarding certain required regulatory approval, both parties have agreed to terminate their merger agreement having passed the August 15, 2023 outside date.”

The cancellation not only affects the strategic planning of both companies, but also underlines the evolving nature of global trade relations and the semiconductor industry’s significance in these dynamics.

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