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Tower Semiconductor is to acquire the other struggling specialty foundry, Jazz Semiconductor, in an all-share deal valued at approximately $169 million, including a net debt. The stock-for-stock transaction values Jazz at approximately $40 million. Russell Ellwanger, CEO of Tower Semiconductor will head the new entity with Jazz operating as a wholly-owned subsidiary. Jazz was initially formed in March 2002 as a joint venture between Conexant and The Carlyle Group, a private equity firm. Jazz Semiconductor was established when asset acquisition firm Acquicor Technology took over the foundry in February 2007. The merger was then put at $260.1 million.

"Over the past few months, our Board has carried out a review of various strategic alternatives to enhance stockholder value and this definitive agreement is the result of that process," said Gil Amelio, Chairman and CEO of Jazz. "Jazz's management looks forward to working with Tower in the coming months to successfully implement the transaction."

"The acquisition of Jazz is an excellent strategic fit for Tower - it creates economies of scale which allows for improved margins and strongly complements our specialty process offering, transforming us into the leading specialty pure-play foundry," said Russell Ellwanger, CEO of Tower. "We are confident that we will realize significant benefits and synergies, including a comprehensive process portfolio which expands our addressable market and fuels a growing and more diversified customer base with highly differentiated product platforms."

Tower will now have two fabs in Israel, one in the U.S. and an ownership interest in a fab in China that equates to a combined (200mm equivalents) capacity of 750,000 annual wafer starts.

According to Tower, the trailing 12-month revenues of the two foundries combined would total $443 million. Cost-saving synergies were put at up to $40 million annually, Tower said. Both foundries have been loss-making for many years.