Tower Semiconductor shares rocketed Tuesday after Intel announced a deal to buy the Israel-based chip foundry for $5.4 billion. TSEM stock jumped more than 40% on the news.
Intel said early Tuesday that it will acquire Tower for $53 per share in cash. The Wall Street Journal late Monday broke the news that a deal was imminent.
The acquisition will accelerate Intel's plans to become a major provider of foundry services to fabless chipmakers.
Intel expects to complete the transaction in about 12 months. The deal will be immediately accretive to Intel's adjusted earnings, the company said.
TSEM Stock Heads Skyward
On the stock market today, TSEM stock surged 42.1% to close at 47.07. Intel stock climbed 1.8% to 48.44.
TSEM stock ended the regular session Monday at 33.13, giving it a market valuation at the time of about $3.6 billion.
Tower makes chips for applications ranging from cars and consumer electronics to industrial and medical gear. It operates factories in in Israel, Japan and the U.S.
"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," Intel Chief Executive Pat Gelsinger said in a news release.
Intel In Investment Mode
The news comes as Intel is planning to build cutting-edge chip factories to take on technology leader Taiwan Semiconductor Manufacturing. Over the last year, Intel has pledged to spend more than $43.5 billion on new chip fabrication plants, or fabs, in Arizona and Ohio and the expansion of a factory in New Mexico.
Wall Street analysts on Tuesday weighed the pros and cons of the deal. On the plus side, the deal expands Intel's foundry business and gives it exposure to specialty chip markets.
However, the deal is expensive for a company with a low gross profit margin, analysts said. Tower Semiconductor's gross margin was 22% last quarter vs 55% for Intel.
"While they are overpaying for the asset, if TSEM increases Intel's prospects for success in foundry, no one will care," Wedbush analyst Matt Bryson said in a note to clients.
TSEM stock ranks seventh out of 41 stocks in IBD's semiconductor manufacturing industry group, according to IBD Stock Checkup. It has an IBD Composite Rating of 88 out of 99. Intel ranks No. 22 in the group with an IBD Composite Rating of 60.
Tower plans to report its fourth-quarter financial results early Thursday.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
