California-based IT giant Intel has confirmed that it has terminated plans to acquire Israeli contract chipmaker Tower Semiconductor.

The companies had agreed a $5.4 billion deal in 2022, with a deadline to close the deal set for 15 August at midnight. Sources cited by Reuters in a report on Tuesday said that the deal was set to be called off after it became evident that it would not get approval from Chinese regulators in time.

Intel will now pay Tower a $353 million termination fee for failing to push through the takeover.

The deal, announced in February 2022, was part of Intel boss Pat Gelsinger’s plan to expand into the foundry market – a small but fast-growing part of the semiconductor industry where companies produce chips for clients on a contract basis. This market is dominated by Taiwan Semiconductor Manufacturing Co. and while Tower has a moderate presence in the foundry market, it still represented an area in which Intel lacked expertise and customers.

While the deal would have represented an evolution of Intel’s business, investors had become sceptical over its completion, with many discounting the chances of it ever being finalised. This scepticism was amplified by Tower’s declining stock price, which stood at $33.78 at close on Tuesday – a far cry from the $53-per-share offer that Tower had accepted from Intel.

Deals requiring the approval of both Washington DC and Beijing are becoming increasingly difficult to close due to mounting political tensions between the US and China. That this was a deal involving semiconductors – a hot-button topic for trade relations, with the vast majority of global production being dominated by the politically contentious region of Taiwan – only served to make it less likely to gain Chinese approval.

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