I have had a go at answering your two questions but it was too long to post here.
I have put it under its own heading http://www.eetimes.com/electronics-news/4219627/Why-the-British-got-out-of-fabs
Would Peter Clarke rather answer why the British had to get out of Fabs and end up just with design / IP a la ARM ?
Why Fabs still survive ( if not exactly thrive ) in the UK's traditional rival France ?
Globalization seems to have reduced the US to the status of the UK
And the answer is...the two companies are in very different areas of the semiconductor industry. IDT, as its name implies, is in the functional integration business. These days, the manufacturing technologies necessary for IDT's products are readily available from wafer foundries. A&O, on the other hand, is in the specialty device business - high power transistors and diodes, power converters, etc. The semiconductor processes necessary for these kinds of products are not as readily available from foundries - because in many cases these kinds of devices are for lower volume applications that don't demand large wafer volumes. And foundry pricing for these kinds of wafers is by no means set at commodity levels, as the foundries offering these technologies typically do so on an opportunistic basis.
This deal wasn't about IDT dumping a fab to A&O for pocket lint. IDT's business takes it towards fabless, while as A&O continues to grow it needs more control over its technology and cost model.
Well, contrary to what the title indicates, this article did not answer why the two companies took different paths, but simply pointed out the difference, and left the "why" to the "detail of the fab,..."