A transaction of this nature would presumably require the approval of Chinese regulators, which 'represents a significant hurdle'

GlobalFoundries Inc is exploring a potential merger with the Taiwanese chipmaker United Microelectronics Corp as part of a long-shot deal aimed at creating a more resilient manufacturer of older-generation semiconductors, people familiar with the situation said. 

Tim Breen, who was named as GlobalFoundries’ incoming chief executive officer in February, has been open to considering deal options including a possible tie-up with UMC as he prepares to take the helm in April, the people said, asking not to be named because the discussions are private.

It’s not clear whether a deal will actually materialize, and a purchase of UMC might prove difficult for GlobalFoundries. The US chipmaker has a market value of roughly US$20 billion, while the Taiwanese firm is worth about US$17 billion. They’re both engaged in a highly cyclical business with large capital spending requirements. GlobalFoundries doesn’t have the cash on hand to finance an outright takeover, so a transaction might require it to borrow heavily or undertake a dilution of its stock.

UMC shares on the Taipei exchange jumped as much as 7.5% on Tuesday before giving up some of those gains. Several analysts have pointed out the challenges standing in the way of a deal happening.

Beyond the complexities of working through how to combine the two companies and who would control the businesses, geopolitics would make the combination challenging.

A transaction of this nature would presumably require the approval of Chinese regulators, which “represents a significant hurdle,” Bloomberg Intelligence technology analysts Charles Shum and Steven Tseng said in a note on Monday. And the Taiwanese government probably wouldn’t approve a deal that puts GlobalFoundries in charge of the two businesses, which would be the most likely structure.

GlobalFoundries didn’t respond to a request for comment. UMC Chief Financial Officer Liu Chi-tung declined to comment, saying the company doesn’t discuss market rumours. Nikkei Asia first reported on talks of a potential merger. 

Taiwan’s chipmakers, major suppliers to the world’s electronics makers, have sprung to the vanguard of shifting manufacturing to the US as President Donald Trump threatens more tariffs. Access to semiconductors, which power everything from the AI revolution to car production, has meanwhile emerged as a key priority for governments amid escalating geopolitical tensions. The Trump administration has asked Taiwan Semiconductor Manufacturing Co to consider taking a stake in a spinoff of the ailing US chipmaker Intel Corp’s factories.

UMC has not yet responded to recent queries by GlobalFoundries for a possible combination, one of the people familiar with the matter said.

A combination would allow GlobalFoundries to “build more significant scale, while UMC is able to diversify its capacity outside of Taiwan and China,” Wolfe Research analyst Chris Caso said in a note. “Industry consolidation in mature node manufacturing would allow suppliers to fend off greater encroachment from China-based suppliers and improve their position with customers.”