Posted by Anirban Sen

NEW YORK (Reuters) – Intel Corp. will pull out of its $5.4 billion deal to acquire Israeli chipmaker Tower Semiconductor once the two companies expire later on Tuesday, sources familiar with the matter said.

The sources said Intel, which signed a deal to buy a tower in February 2022, had not obtained approval from Chinese regulators for the acquisition as required under its contract with the Israeli company.

The sources, who requested anonymity before the official announcement, added that the company does not plan to negotiate a contract extension and will instead pay Tower Tower a $353 million termination fee to withdraw.

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.

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.

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.

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