Intel Corp will walk away from its $5.4 billion deal to acquire Israeli contract chipmaker Tower Semiconductor Ltd once the companies' contract expires later on Tuesday, according to people familiar with the matter. Intel, which signed the deal to buy Tower in February 2022, did not secure approval from Chinese regulators for the acquisition as required under its contract with the Israeli firm, the sources said.

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It does not plan to negotiate an extension of the contract, and will instead pay Tower a $353 million break-up fee to walk away, the sources added, requesting anonymity ahead of an official announcement. Intel and Tower declined to comment. Representatives for the State Administration for Market Regulation, China's antitrust regulator, could not be immediately reached for comment.

The development underscores how tensions between the United States and China over issues including trade, intellectual property and the future of Taiwan are spilling over into corporate dealmaking, especially when it comes to technology companies. Last year, DuPont De Nemours Inc scrapped its $5.2 billion deal to buy electronics materials maker Rogers Corp after delays in securing approval from Chinese regulators.

Intel Chief Executive Pat Gelsinger had said he was trying to get the Tower deal approved by Chinese regulators and had visited the country as recently as last month to meet with government officials.

But Gelsinger also said Intel was investing in its foundry business, which makes chips for other companies, irrespective of the Tower deal. In June, Israeli Prime Minister Benjamin Netanyahu announced that Intel had agreed to spend $25 billion on a new factory in Israel, the largest-ever international investment in the country.

Investors had given up hope on the Tower deal as a result. Tower's Nasdaq-listed shares ended trading at $33.78 on Tuesday, a steep discount from the $53 per share deal price. In the second quarter, Intel's foundry business reported revenue of $232 million, up from $57 million a year earlier, as it made advances on rivals such as industry leader Taiwan Semiconductor Manufacturing Co.