Texas Instruments to buy Nat Semi for $6.5 billion

The deal, one of the industry's largest in years, sparked a rally in the shares of microchip makers from Nvidia Corp (NVDA.O) to Marvell Technology Group Ltd (MRVL.O), of 2 and 3 percent on speculation of broader consolidation.

TI will pay $25 for each NatSemi common share, lifting the stock 74 percent to $24.45 in after hours trading. TI shares fell 1.5 percent to $34.11.

The acquisition would extend TI's lead in the vast but fragmented market for analog chips, while NatSemi, with a strong portfolio of power management microchips for industrial uses as well as for wireless telephones, may be open to a deal because it lacks stronger long-term growth prospects.

"It will improve TI's position in power management chips -- that's where National has particular strength," Morningstar analyst Brian Colello said.

The eye-popping premium led some analysts to speculate that TI might be hoping to seal a deal and thwart rival bidders. But TI said it was "comfortable" with the price, and both companies touted an annual $100 million in cost savings as they share sales forces and capacity.

"Texas Instruments has been a pretty prudent company. There is either some kind of buried patent (owned by NatSemi) that is unbelievably attractive to them, or there were other bidders and they felt pressured to get it," said Fort Pitt Capital analyst Kim Caughey Forrest.

Others said NatSemi's shares had become undervalued and that the acquisition price of about four times sales is not excessively expensive.

"It's in the ball park of price-to-sales multiples that other peers are trading at," Gleacher & Co analyst Doug Freedman said. "Yes, the premium is large but I think without paying that premium they're not getting the company."

Shares of NatSemi have fallen about 3 percent over the past year.

Analog chips translate real-world phenomena like sound, temperature and light into the 1s and 0s that comprise digital computer language. They are instrumental in regulating electricity consumption -- a crucial point for power-hungry smartphones and tablets and their battery lives.

Apple Inc's (AAPL.O) iPod Touch MP3 player and Motorola Inc's (MMI.N) Xoom tablet computer both use power-related analog chips made by Texas Instruments, according to IHS iSuppli. The average cell phone has as many as 30 different power management parts.

"Digital chip makers like Intel (INTC.O) used to disdain analog, but it's the way you get information in and out of these mobile devices," Caughey Forrest of Fort Pitt said.

STORIED ACQUISITION

The deal -- which sources say was brokered by Silicon Valley dealmaker Frank Quattrone -- brings together two of the industry's most storied players, and could catapult TI past Japan's Toshiba Corp (6502.T) to the No. 3 global ranking in the overall semiconductor market with a 4.5 percent share.