Smartphone chipmaker Qualcomm Inc (QCOM.O) agreed to buy NXP Semiconductors NV (NXPI.O) for about $38 billion in the biggest-ever deal in the semiconductor industry, making it the leading supplier to the fast-growing automotive chips market.
The acquisition will also help Qualcomm, which provides chips to Android smartphone makers and Apple Inc (AAPL.O), reduce its dependence on a cooling smartphone market.
With the deal, Qualcomm is taking a big bet on the so-called Internet of Things (IoT), which enables everyday objects such as fridges and cars to communicate with each other.
"The pace of innovation in automobile and IoT will increase dramatically and I think we look at it as a tremendous opportunity," Qualcomm Chief Executive Steven Mollenkopf said on a conference call.
By 2020, some 21 billion IoT devices will be in use worldwide, up from fewer than 5 billion last year, research firm Gartner has estimated.
Qualcomm sat out the transformative consolidation that has swept the chip industry recently.
The deal announced on Thursday tops Avago's $37 billion acquisition of Broadcom (AVGO.O) last year.
The equity value of Qualcomm's offer is $37.88 billion, according to Reuters calculations based on the company's fully diluted shares as of Oct. 2. Including debt, the deal is worth roughly $47 billion.
Qualcomm's shares were up 4.9 percent at $71.55 in afternoon trading.
The $110 per share cash offer represents a premium of 11.5 percent to NXP's Wednesday close.
NXP's shares, which had risen 20 percent since reports of a potential deal emerged on Sept. 29, were marginally higher at $99.24.
Qualcomm said it expected the deal to clear regulatory scrutiny, given the complimentary nature of the two businesses.
Needham & Co analyst Rajvindra Gill said there was not much overlap in products or end-markets between the two companies.
"There's been a lot of semiconductor M&A activity in the last two years and I haven't seen one deal that has been delayed because of regulatory hurdles at this point," Gill added.
The combined entity would have annual revenue of more than $30 billion.
NXP, based in the Netherlands, became the world's biggest maker of automotive electronics after it bought U.S.-based Freescale Semiconductor for about $12 billion last December.
Goldman Sachs and JPMorgan have committed financing for the deal, which is expected to close by the end of 2017.
The deal is structured to use offshore cash flow in a tax-efficient manner to rapidly reduce leverage, Qualcomm said.
The company said it expected the deal to generate $500 million in cost savings annually within two years of closing.
Goldman Sachs and Evercore were financial advisers to Qualcomm, while Centerview Partners LLC advised its board. Paul, Weiss, Rifkind, Wharton & Garrison LLP; Cravath, Swaine & Moore LLP and Allen & Overy LLP were legal counsel to Qualcomm.
Qatalyst Partners, Barclays and Credit Suisse were financial advisers to NXP and Skadden, Arps, Slate, Meagher & Flom LLP and De Brauw Blackstone Westbroek provided legal advice.
(Reporting by Supantha Mukherjee and Narottam Medhora in Bengaluru; Editing by Shounak Dasgupta and Saumyadeb Chakrabarty)