Almost 18 months has passed since US chip giant Intel announced that it was acquiring Tower Semiconductor Ltd. (Nasdaq: TSEM; TASE:TSEM) at a company valuation of $5.4 billion. The deadline for completing the deal was initially the start of 2023, which was postponed until next week August 15. Either of the parties can cancel the deal if it is not completed by next Tuesday although if Intel pulls out it will be required to pay Tower $353 million compensation. It is also possible that both companies will agree to continue and wait until the deal is completed.
Intel announced the acquisition of Tower as part of its relatively new strategy of becoming a chip manufacturer for third parties as well. However, despite the long time that has passed since the signing of the deal, the Chinese regulator has not yet issued its approval. Last month, due to the approval awarded by the Chinese regulator for another deal between chip companies, Tower shares jumped due to the belief that the move was an indication of the imminent approval of the Intel-Tower transaction too, but so far this has not happened.
Migdal Ha'Emek based chipmaker Tower, is currently traded on Nasdaq and the Tel Aviv Stock Exchange (TASE) at a market cap of $4.1 billion. Its share price is about $36.1, significantly lower than the share price in the deal, which is $53. In other words the market is pricing that there is a high likelihood that the deal will not eventually go through.
Analysts have estimated in recent months that even if the deal is eventually cancelled, Tower will not be significantly harmed. Bank Hapoalim wrote three months ago that based on the profit forecast for 2024 and together with Tower's liquid assets (including the expected compensation from Intel for canceling the deal), the target price for Tower shares is $52 per share - only one dollar less than the sale price to Intel.
Oppenheimer senior equity analyst Sergey Vastchnok also referred to the possibility of canceling the deal when he recently told "Globes" that even if there is no deal, Tower's share price will not drop much. According to him, "Tower can also move forward on its own, but Intel will have to look for something else to implement its strategy, if the deal falls through."
Published by Globes, Israel business news - en.globes.co.il - on August 9, 2023.
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