Successful Intel takeover can push Tower Semiconductor’s stock up 18.1%

  • Ticker: TSEM.US
  • Entry price: $44.85
  • Target price: $53
  • Potential: 18.17%
  • Time Horizon: 8 months
  • Portfolio size: 2%
  • Risk level: high

The Company

Tower Semiconductor (TSEM.US) is an Israel-based Tower Semiconductor that specialises in trailing edge nodes (150nm to 300nm) for analogue devices, used mainly for power management and in IoT sensors. They are used as components in a wide range of electronic devices, from home appliances to cars.

What's the idea?

In February 2022, Intel made an offer to buy Tower Semiconductor. Terms of the deal:

  • Buyer: Intel (INTC)
  • Offer: $53 per share
  • Growth potential: 19.23%
  • Form of payment: cash
  • Closing date: 2023

Description of the idea

We have previously discussed the general principles of implementing the M&A arbitrage investment strategy.

On 15 February 2022, Tower Semiconductor and Intel announced an agreement under which TSEM shareholders will receive $5.4 billion, or $53 per share.

In favour of the deal being approved by regulators is the fact that by buying Tower, Intel is not gaining a fundamental competitive advantage or increasing its market share, but only ensuring complementarity of its product line and benefiting from synergies. The TSEM back-end nodes are at the other end of the spectrum of complex technology nodes, while Intel focuses mainly on the 5nm, 7nm and 10nm nodes. The Intel CEO noted that regulatory approval has already been granted in several regions.

Complicating the approval may be the fact that Tower is a non-US company headquartered in Israel that operates semiconductor plants in three countries: Israel, the US and Japan (through a 51% stake in TPSCo, the remaining 49% is held by Nuvoton Technology Corporation). In addition, the semiconductor industry has acquired strategic status over the past two years. However, it is important to note that all three countries involved are on relatively friendly terms.

Risks

  • Key risk: regulatory approval
  • Possible loss: - 28.4%

How to take advantage of the idea?

  1. Buy shares at a price of $44.85
  2. Allocate no more than 2% of your portfolio for purchase. To compile a balanced portfolio, you can use the recommendations of our analysts.
  3. Sell when the price reaches $53

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