LSI Logic Strong-Arms Storage Sector

Under the terms of the deal, Agere shareholders will receive 2.16 shares of LSI common stock, equal to $22.81 a share at Friday's closing price -- a 28% premium.

LSI will issue approximately 379 million shares to complete the transaction. LSI shareholders will own 52% of the new company, while Agere shareholders will have 48%.

LSI also announced that it had approved up to $500 million in share repurchases.

Agere will get three seats on the board of the new company, compared with six for LSI, and Talwalkar will remain CEO of the newly merged company.

The deal links two chipmakers that were in the middle of carrying out turnaround plans, with each adding new leadership teams and refocusing their respective business models over the past year.

In October, Agere reported its first profitable year in its five-year history as a public company.

LSI, meanwhile, sold its chip fabrication facility earlier this year, exited certain businesses and refocused the company around two target markets: storage and consumer electronics.

While LSI's storage business, which includes storage chips and storage systems, has posted double-digit revenue growth, the consumer electronics business has not fared as well. Consumer chip revenue plunged 28% in the third quarter, hurt primarily by the fact that chip company PortalPlayer(PLAY Quote), an LSI customer, lost its slot in the Apple Computer(AAPL Quote) iPod nano.