China thwarts Intel’s $5.4bn Israeli chipmaker purchase

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Intel said on Wednesday that it was abandoning an attempt to purchase Israeli chipmaker Tower Semiconductor, after failing to secure regulatory approval in China for the $5.4bn deal.

The acquisition had yet to be signed off by the Chinese competition regulator, said two people briefed on the matter. Officials in Beijing have been scrutinising any transaction that could hand greater control over the semiconductor supply chain to Washington.

A deal on that scale needs the go-ahead from regulators around the world, including China. One source close to the regulators in China said it was “extremely difficult” to obtain Beijing’s approval for a US company to acquire a vital chip fabrication plant, or fab, as the Chinese chip industry faces tough export controls from Washington and its allies.

“If a Chinese foundry wants to buy Tower Semiconductor today, will the regulators from other countries give us the green light?” said this person.

The multibillion-dollar deal is among a number of semiconductor transactions to face hold-ups in Beijing and a review of the merger had dragged on longer than executives anticipated. When the deal was announced in February last year, Intel said it expected it would close within 12 months. The US chipmaker this year admitted to delays.

The US semiconductor company said that it would pay a fee of $353mn to Tower because of the deal’s termination. Tower said in a statement that it had “mutually agreed” with Intel to cancel the transaction.

Intel chief Pat Gelsinger in April indicated he had discussed the transactions with regulators on a trip to China. He told investors then that they were working to close it but did not provide a timeline. August 15 marked the deadline for closing the deal.

In recent months, investors had been betting that the Tower acquisition would not go through. US-listed shares in the Israeli group have traded consistently below the proposed purchase price of $53 per share, and closed at a discount of 36 per cent to that price on Tuesday.

The group’s Israeli-listed shares were down 9 per cent at midday on Wednesday in Tel Aviv.

The collapse of the deal follows a decision by Intel this year to step up its investment in Israel, with the company committing to spend an extra $15bn on expanding its facilities in Kiryat Gat.

That project is part of a string of big investments, including a $20bn site in Germany and others in the US and Ireland, planned by Intel to make it more competitive with Taiwan’s TSMC.

For Intel the deal’s failure will be a setback to its efforts to make chips for other companies in its attempt to catch up with leaders TSMC and Samsung. While Tower’s chip plants were far from cutting edge, the group had hundreds of customers and a culture built around serving chip design groups, which Intel lacks. 

It also highlights how frictions between Washington and Beijing are buffeting the group in China, its largest market that provided 27 per cent of its $63bn in sales last year.