Chinese Antitrust Regulator Block Intel’s $5.4 Billion Plan To Acquire Israeli Chipmaker Tower Semiconductor

Leading chip behemoth Intel has scrapped its plans to acquire Israeli foundry Tower Semiconductor after the deal failed to secure approval from Chinese regulators ahead of a final deadline.

Intel on Wednesday said that it terminated the deal to acquire Tower for $5.4 billion "due to the inability to obtain in a timely manner the regulatory approvals required under the merger agreement".

Intel, which had decided to buy Tower last year, will pay a termination fee of $353 million to the latter, the company said in a statement.

Intel CEO Pat Gelsinger was in China as recently as last month to convince the government officials in Beijing to give the go-ahead for the deal.

Antitrust reviews have increasingly emerged as Beijing's tool kit to retaliate against U.S.'s export restrictions on advanced chip technology.

Any merger involving companies with significant business presence in China needs to be approved by the State Administration for Market Regulation (SAMR), the antitrust regulator. In 2022, Intel generated $17.13 billion of its revenue in China (accounting for more than 25% of its overall revenue)

In 2018, Chinese regulators scuppered Qualcomm's $44 billion purchase of Dutch chip maker NXP Semiconductors.

Acquisition Announced In 2022

In February 2022, Intel announced that it had signed a definitive agreement to acquire Tower Semiconductor, a leading foundry for analogue semiconductor solutions, in a deal valued at $5.4 billion.

Tower makes semiconductors and circuits for companies across sectors specialising in customized analogue solutions. It operates manufacturing facilities in Israel, California, Texas and Japan.

The acquisition was seen as an important part of Intel's new manufacturing strategy. Intel is aiming to become the world's most advanced semiconductor by 2024 and regain leadership in chip production that it lost to rivals Taiwan Semiconductor Manufacturing Co.(TSMC) and Samsung Electronics.

Intel sought to build a "foundry" unit to manufacture chips for third-party, "fabless" designers. The company established a new standalone business unit, Intel Foundry Services (IFS), led by semiconductor industry veteran Dr. Randhir Thakur(Thakur has since quit the company and joined India's Tata Group)

Through this new initiative, Intel sought to become a significant provider of U.S.– and Europe-based foundry capacity to serve the global demand for semiconductor manufacturing.

While it was clear that Intel wants to compete with TSMC and Samsung for advanced node chip making through IFS, it has been unclear if they are also interested in mature node technologies. Much of the global chip shortage is actually driven by a shortage of capacity to make mature node chips.

The acquisition of Tower was viewed as an unambiguous signal that it would get into the mature node foundry business. Instead of building the business from scratch, it has taken the acquisition route.

Incidentally. a proposed $3 billion semiconductor facility in India by ISMC with Tower as a tech partner was stalled due to Intel's takeover of the latter, hampering India's chip-making plans.