Intel Corp agreed to buy Altera Corp for $16.7 billion as the world's biggest chipmaker seeks to make up for slowing demand from the PC industry by expanding its line-up of higher-margin chips used in data centers.
By combining with Altera, Intel will be able to bundle its processing chips with the smaller company's programmable chips, which are used, among other things, to speed up Web-searches.
Intel said on Monday it would offer $54 per share for San Jose, California-based Altera, a 10.5 percent premium to Altera's close on Friday.
Altera's shares were changing hands at $51.83 in early trading, while Intel's were up marginally at $34.48.
The deal price is unchanged from Intel's unsolicited offer that sources had said Altera rejected in April.
The transaction is the third big one in the highly fragmented chip industry this year. In the industry's biggest-ever deal, Avago Technologies Ltd agreed last week to buy Broadcom Corp for $37 billion.
Altera's programmable chips will allow Intel to increase the computational capability of its Xeon server chips, which could be under attack post the Avago-Broadcom merger, Summit Research analyst Srinivasan Sundararajan told Reuters.
NXP Semiconductors NV set off the latest round of deals in March when it agreed to buy Freescale Semiconductor Ltd for $12 billion.
Intel's deal for Altera is its biggest since it bought security software maker McAfee in 2011 for $7.7 billion.
It also underscores Intel Chief Executive Brian Krzanich's determination to expand beyond chips for PCs, the company's mainstay. Intel slashed nearly $1 billion from its first-quarter revenue forecast in March, saying that small businesses were delaying upgrading their computers.
Personal computer shipments fell 5.2 percent in the first three months of this year, extending three years of decline, according to research firm Gartner.
Net revenue from Intel's PC group increased just 4 percent in 2014, generating about 62 percent of total revenue, while revenue in its data center group increased 18 percent, providing just over a quarter of overall revenue.
The deal will also help Intel become more involved in the so-called Internet of Things - the concept of connecting ordinary household devices to the Internet.
The New York Post reported on Thursday that Intel and Altera had restarted talks.
Up to Friday's close, Altera's shares had risen 41.3 percent since the Wall Street Journal reported on March 27 that the two companies were in talks. Intel's shares rose 14.6 percent.
J.P. Morgan Securities LLC and Rothschild Inc are financial advisers to Intel. Gibson, Dunn & Crutcher LLP and Weil, Gotshal & Manges LLP are legal advisers.
Goldman Sachs & Co is Altera's financial adviser, and Wilson Sonsini Goodrich & Rosati Professional Corp is legal adviser.
(Reporting By Lehar Maan and Supantha Mukherjee in Bengaluru; Editing by Ted Kerr)
This story originally appeared on Reuters