Intel Corp. on Tuesday struck a $5.4 billion deal to buy Tower Semiconductor, as it seeks to bolster its manufacturing capabilities.
Intel INTC, -0.10% said it’s paying $53 per share in cash for Tower TSEM, -1.98%, a 60% premium to Monday’s close. Tower shares had surged in after-hours trade on Monday when The Wall Street Journal reported a deal was close.
In premarket trade on Tuesday, Tower Semi shares jumped 47% to $48.62. Intel shares rose 2%.
Tower, which makes a wide variety of chips ranging from those catering to the consumer, industrial, automotive and mobile markets, has manufacturing facilities —- called “fabs” in industry parlance — in Migdal Haemek, Israel; Agrate, Italy, Newport Beach, Calif.; and San Antonio, Texas, according to Tower’s website.
Tower also owns a 51% stake in TPSCo. with Nuvoton Technology Corp. 4919, +1.39% having a 49% stake. That partnership has three fabs in Japan that specialize in integrated circuits, more than 750 million of which have gone to the auto industry, according to Tower.
“Tower’s specialty technology portfolio, geographic reach, deep customer relationships and services-first operations will help scale Intel’s foundry services and advance our goal of becoming a major provider of foundry capacity globally,” said Pat Gelsinger, Intel CEO, in a statement.
Intel has pledged to build out its manufacturing capacity, earmarking up to $28 billion for 2022 back in October, and recently said it will spend more than $20 billion to build a “mega-site” fab in Ohio, as well as $20 billion for sites in Arizona. The move to build capacity has met with concern from analysts because Intel’s spending is punishing the company’s gross margins.
In July, Intel was reportedly seeking to acquire a then-privately owned GlobalFoundries GFS, +1.85% in a deal that was estimated to be around $30 billion, but that speculation was quashed in October when GlobalFoundries filed for an initial public offering and started traded publicly on the Nasdaq Oct. 28.
Intel said the acquisition will immediately lift its adjusted earnings per share upon closing and be funded with cash from the balance sheet.
Goldman Sachs advised Intel, while JPMorgan advised Tower.