Shares of Tower Semiconductor (TSEM -1.27%) charged sharply higher on Tuesday, surging as much as 43.3%. As of 10:39 a.m. ET, the stock was still up 41.9%.
The catalyst that sent the semiconductor foundry surging was an announcement that the company will be acquired by a tech titan.
Intel (INTC -3.50%) announced on Tuesday that it had reached a definitive agreement to acquire Tower Semiconductor in an all-cash deal valued at $5.4 billion. The combination will create "a globally diverse end-to-end foundry to help meet growing semiconductor demand."
Tower Semiconductor manufactures a variety of specialized chips that are used in automotive and consumer products, as well as industrial and medical equipment. This includes power management chips and image sensors, among others. The deal will not only increase Intel's customer base, but also provide additional chip-making expertise.
Intel said the deal will increase its manufacturing capability, expand its global footprint, and upgrade its portfolio in a time of "unprecedented industry demand."
Tower Semiconductor shareholders will receive $53 in cash per share of stock they hold, which represents a 60% premium to the stock's closing price on Monday of $33.13. The boards of directors of both companies have already approved the transaction, which is expected to close within approximately 12 months.
The transaction may not be a slam dunk, as it will still have to secure regulatory approval. That could be a high bar, which was painfully evident as Nvidia was recently forced to abandon its bid to acquire SoftBank's Arm Holdings.
Intel has been working to regain lost ground in the semiconductor industry. The acquisition will position the company to better compete against Taiwan Semiconductor Manufacturing, the world's largest semiconductor foundry. This is also no doubt a part of CEO Pat Gelsinger's plans to modernize Intel's chip manufacturing capabilities.
When Intel released its fourth-quarter and full-year financial report, the company announced plans to spend more than $20 billion to build two new "leading-edge chip factories" in Ohio. This came on the heels of plans to increase capacity at its manufacturing facilities in Arizona and New Mexico.