Chinese regulator delaying Intel-Tower deal

Intel’s acquisition of Israeli chipmaker Tower Semiconductor Ltd. (Nasdaq: TSEM; TASE:TSEM) for $5.4 billion, which was announced early last year is still waiting to be completed. In January 2023, Intel announced that completion of the deal was being delayed until before the end of June 2023 as the intensifying chip war between the US and China is casting a shadow over whether the Chinese regulator will approved the deal.

Uncertainty regarding approval of the deal is only increasing. Intel did not refer to the merger in its first quarter financial report, but CEO Pat Gelsinger provided a general and unsatisfactory statement about the continuation of talks with the Chinese following his visit to the country. Now, Intel only has only two months left to receive Chinese approval, unless it will be postponed again, or even cancelled.

At the beginning of 2023, there were reports that the Chinese regulator had suspended the talks in December, which saw Tower’s share price fall by 14% between January and March 2023.

At the start of April, top Intel executives met with senior Chinese government officials for talks, and Gelsinger even traveled to China to discuss with China’s Minister of Commerce Wang Wentao, the issue of supply chain stability in the chip industry. Talks probably focused on Chinese concerns that the US administration plans preventing Intel from supplying chips to Chinese manufacturers, such as Huawei. They are also concerned about the ongoing setback in the construction of chip manufacturing plants in Asia and especially angry about the ban on the sale of production machines and technologies that prevents the Chinese from producing high-level complex chips – like the ones that Intel markets.

The Chinese also fully understand Intel’s dependence on them. China was the largest market for the US chipmaker last year – 27% of its revenue, or $21.1 billion. Now, Intel intends to pay in cash. During Gelsinger’s visit to China, tech news website “The Register” reported that Intel will provide China with dedicated graphics processors that are within the US government’s permitted guidelines.

Meanwhile investors are optimistic that the deal will be completed. Tower’s share price rose 3% and is close to the same level as when the acquisition was announced at the start of 2023, after Gelsinger commented on the continued talks with the Chinese regulator.

Psagot tech analyst Shahar Carmi told “Globes,” “Judging by past experience, the Chinese tend to approve deals by US companies, but on the other hand, the two superpowers have never been in conflict as they are today. I have no doubt that they biding their time, while flexing their muscles in other tech area. The Chinese asked to examine alleged weaknesses found in the products of US company Micron earlier this year. But the assessment is that the Intel-Tower deal will be approved.”

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In the less likely scenario that the deal is canceled, Intel would be required to pay Tower a $353 million fine and it would lose several percent of its value. But the damage to its reputation would be even more costly. Tower is a central building block in Intel’s strategy to reposition itself as a manufacturing enterprise for the chip industry.

Canceling the deal would mean Intel would have to seek a new acquisition in the field. For Tower, cancelation of the acquisition would be no less dramatic and Carmi estimates that in such a scenario the Israeli company would lose 25% of its value.

Published by Globes, Israel business news – en.globes.co.il – on April 30, 2023.

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