What happened
Intel(NASDAQ: INTC) stock took it on the chin Wednesday following the company's retreat from a deal to acquire an Israel-based peer.
The move came after the company failed, "in a timely manner," to secure regulatory approval for the $5.4 billion arrangement from regulators in China. Investors were obviously disappointed that Intel won't be bulking up with the new asset, as they traded the stock down by nearly 4% on the news.
So what
In separate press releases, Intel and its target, chipmaker Tower Semiconductor(NASDAQ: TSEM), announced that Intel was pulling out of the deal. This will trigger a hefty $353 million termination fee that Intel must pay to Tower, likely another reason for the negative investor reaction.
Trying to acquire that business was a sensible move for Intel. The American company is eager to expand its chipmaking capabilities in a global environment where demand is high and sustainable for such goods.
Intel put a brave face on what's clearly a setback to its ambitions.
In its press release, the company quoted CEO Pat Gelsinger as saying that despite the withdrawal, "We are executing well on our roadmap to regain transistor performance and power performance leadership by 2025, building momentum with customers and the broader ecosystem and investing to deliver the geographically diverse and resilient manufacturing footprint the world needs."
Now what
Owning Tower would have pushed Intel well ahead in its goal of being the No. 2 global "foundry" by 2030, so the investor sell-off was fully justified and entirely understandable. In the company's press release, it indicated it would be open to finding ways of collaborating with Tower as a business partner in the future.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tower Semiconductor. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel and long January 2025 $45 calls on Intel. The Motley Fool has a disclosure policy.
