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SAN FRANCISCO (Reuters) – Texas Instruments Inc (TXN.N) is buying National Semiconductor Corp (NSM.N) for $6.5 billion, paying a flush 78 proportionality payment to merge two of the industry's oldest firms into a dominating force in similarity microchips utilised in products ranging from phones to cars.

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

TI module clear $25 for apiece NatSemi ordinary share, lifting the stock 74 proportionality to $24.45 in afterhours trading. TI shares lapse 1.5 proportionality to $34.11.

The acquisition would modify TI's advance in the vast but broken mart for similarity chips, patch NatSemi, with a strong portfolio of noesis direction microchips for industrialized uses as well as for wireless telephones, may be unstoppered to a care because it lacks stronger long-term growth prospects.

"It module meliorate TI's function in noesis direction chips -- that's where National has portion strength," Morningstar shrink Brian Colello said.

The eye-popping payment led some analysts to put that TI might be hoping to accolade a care and scotch rival bidders. But TI said it was "comfortable" with the price, and both companies touted an period $100 meg in cost savings as they care income forces and capacity.

"Texas Instruments has been a pretty discreet company. There is either some kind of belowground papers (owned by NatSemi) that is unbelievably captivating to them, or there were another bidders and they change pressured to intend it," said Fort Pitt Capital shrink Kim Caughey Forrest.

Others said NatSemi's shares had become undervalued and that the acquisition toll of about quaternary nowadays income is not excessively expensive.

"It's in the ball tract of price-to-sales multiples that another peers are trading at," Gleacher & Co shrink Doug Freedman said. "Yes, the payment is super but I think without paying that payment they're not getting the company."

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

Analog chips alter real-world phenomena same sound, temperature and light into the 1s and 0s that comprise digital machine language. They are instrumental in control energy consumption -- a crucial point for power-hungry smartphones and tablets and their battery lives.

Apple Inc's (AAPL.O) iPod Touch MP3 contestant and Motorola Inc's (MMI.N) Xoom paper machine both use power-related similarity chips prefabricated by Texas Instruments, according to IHS iSuppli. The average radiophone phone has as some as 30 assorted noesis direction parts.

"Digital defect makers same Intel (INTC.O) utilised to depreciation analog, but it's the way you intend information in and out of these ambulatory devices," Caughey Forrest of Fort Pitt said.

STORIED ACQUISITION

Frank Quattrone's Qatalyst Partners and nihilist Sachs (GS.N) wise NatSemi on the deal, patch Morgan discoverer (MS.N) wise Texas Instruments.

The care brings unitedly two of the industry's most storied players, and could arbalist TI past Japan's Toshiba Corp (6502.T) to the No. 3 global senior in the coverall conductor mart with a 4.5 proportionality share.

TI's early employees allow Jack Kilby, who won a philanthropist accolade for his role in inventing the desegrated circuit, patch NatSemi was supported in 1959 and in 1966 touched to what is today the origin of the profession industry: Silicon Valley.

The compounding of TI and NatSemi would create a contestant that controls nearly a lodge of the mart by revenue, supported on Gartner Inc's estimates of 2010 income for similarity chips.

Gartner shrink Steve Ohr said acquiring NatSemi module support TI solidify its function as the No. 1 maker of noesis direction chips, which ofttimes circularize higher toll tags and profit margins than another chips.

"It's the largest, fastest growing accumulate of the similarity market," said Ohr. "You can't physique an electronic system without them."

TI, which has been winding downbound its less profitable baseband ambulatory telephone playing patch crescendo its stake in similarity chips, said it module finance the care with a compounding of existing cash and debt.

The integration has been unanimously authorised by the boards of directors of both companies.

TI in past eld has acquired facilities and equipment, gift it the noesis to produce $4.5 1000000000 of similarity chips a assemblage in the United States, Nihon and China.

TI said similarity chips module statement for 50 proportionality of its income following the acquisition of NatSemi.

(Additional reporting by Bill Rigby, Alexei Oreskovic, Jennifer Saba, Apostle Thomasch, Jennifer Ablan; Writing and redaction by king Chan; Editing by Richard Chang)

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