Texas Instruments to buy National Semiconductor for $6.5 billion

NEW YORK (CNNMoney) -- Texas Instruments said late Monday that it has agreed to buy rival National Semiconductor for $6.5 billion in cash.

The deal would make Texas Instruments one of the world's largest makers of analog technology components, which are used to convert real-world information, like sounds, into digital signals.

Under the terms of the deal, Texas Instruments will pay $25 a share for National Semiconductor -- a 78% premium to National Semiconductor's share price of $14.07 as of Monday's close. Texas Instruments said it will fund the deal through a combination of cash on hand and company-issued debt.

TI estimates that the market for analog semiconductors was a $42 billion industry in 2010, and says it held around 14% of the market. National Semiconductor controls around 3%.

"Our share in the analog sector is still modest and we have room to grow," said TI's CEO Rich Templeton in a conference call with investors. "This transaction is part of our strategy."

The companies said the deal would combine their complementary product portfolios and increase National Semiconductor's sales position by giving it access to Texas Instrument's large sales force. In exchange, TI gets access to National Semiconductor's portfolio of industrial products.

Templeton said he expects the deal will be accretive to earnings in the first year, and will make analog semiconductors sales account for around 50% of TI's annual revenue.

National Semiconductor was not looking to sell itself, but Texas Instruments' unsolicited offer was too generous to turn down, National's CEO, Don Macleod, told investors.

The deal is expected to close in six to nine months, pending regulatory and shareholder approvals, the companies said. TI said it does not expect any major regulatory hurdles.

Shares of National Semiconductor (NSM) and Texas Instruments (TXN, Fortune 500) were halted in after-market trading. Shares of National Semiconductor have gained 2.3% so far this year before the deal was announced, while Texas Instruments' shares are up 5% year-to-date.