As a result of failing to obtain the necessary regulatory approval, Intel halted its acquisition of Israeli chipmaker Tower Semiconductor on Wednesday.

The IT behemoth announced in a statement that it is abandoning the proposed merger “due to the inability to obtain in a timely manner the regulatory approvals required under the merger agreement.”

A $353 million termination fee will be paid to Tower by Intel.

In February 2022, Intel disclosed plans to pay $5.4 billion to acquire Tower, a contract chipmaker that produces semiconductors for other businesses.

According to people familiar with the situation, Reuters reported on Tuesday that Intel had missed a vital deadline for getting Chinese government permission for the transaction. The purchase has not received public approval from Chinese authorities.

“After careful consideration and thorough discussions and having received no indications regarding certain required regulatory approval, both parties have agreed to terminate their merger agreement having passed the August 15, 2023 outside date,” Tower Semiconductor said in a statement Wednesday.

The deal’s cancellation could be a setback for Intel, which has promised to grow its foundry division under CEO Pat Gelsinger. Foundries are businesses that produce semiconductors.

Over time, South Korean company Samsung and Taiwanese company TSMC took Intel’s lead in chip production, and the company is now working to make up ground. The partnership would have given Intel a foothold in Tower’s niche technological areas, such as industrial sensors and radio frequency.

The U.S. effort to reclaim primacy in semiconductor production is considered as dependent on Intel.

The cancellation of the transaction also serves as a reminder of how commercial agreements frequently become entangled in the larger technology conflict between China and the United States, with semiconductors at its core.

Export limitations have been utilised by the US to deny China access to vital semiconductor technology. The export of some metals used in chip manufacturing and other technological processes is limited in China. Beijing has also prohibited some Chinese organisations from purchasing goods from the American memory chip manufacturer Micron.

(Adapted from LiveMint.com)