Intel has inked a deal to buy Israeli chipmaker Tower Semiconductor for $5.4 billion, the two firms announced Tuesday.
Intel says the deal will allow it to expand its operations to be able to meet the growing global demand for chips, and specifically in the so-called foundry market of bespoke processors. The foundry market is valued at 100 billion dollars.
Intel’s CEO Pat Gelsinger said Tower will help the chip maker turn into a central supplier in the foundery space, increasing its production ability to a global scale in this extremely specified market.
Tower brings to the table almost two decades of experience in the field and comes with an impressive list of clients.
Intel is paying $53 per Tower share, well above a closing price of $33.13 on Nasdaq on Monday.
The transaction is expected to close in about 12 months and has already been unanimously approved by both boards. The deal is still subject to certain regulatory approvals including the approval from Tower’s shareholders.
It is expected to be immediately accretive to Intel’s non-GAAP earnings per share. Intel said it intends to fund the acquisition with cash from its balance sheet.
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Tower, the companies said, will remain independent until the deal closes. Then, Tower will be integrated into Intel Foundry Services (IFS), which Intel established a year ago to help meet growing global demand for semiconductor manufacturing capacity.
The potential purchase would deepen Intel's presence in a space dominated by Taiwan-based TSMC , the world's largest contract chipmaker. It also comes at time when the global semiconductor shortage has hampered the production of everything from smartphones to cars.
Tower Semiconductor, whose U.S. shares surged 53% in extended trading, specializes in analog chips used in the automotive, mobile, medical and aerospace industries.
It had a market capitalization of $3.6 billion as of Monday's close. Chipmaking is expensive and difficult, so most companies either design or produce. Intel has opened up its factories to rival semiconductor designers to spread costs.
Shares in Tower's Tel Aviv shares were halted pending the announcement and have not yet begun trading.
Reuters contributed background to this report