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NEW YORK (The Deal) -- The U.K.'s Dialog Semiconductor (DLGNF) saidon Sunday that it has agreed to buy Atmel (ATML) , of San Jose, Calif., for $4.4 billion to diversify its customer base away from Apple (AAPL) - Get Apple Inc. Report and other mobile device makers and gain technology to expand in the "Internet of things" and automotive sectors.

Dialog CEO Jalal Bagherli said the agreement gives the combined entity an addressable market that is set to double to almost $21 billion by 2019. By adding Atmel's microcontroller, wireless connectivity, security and other products to a Dialog semiconductor range centered on power management for smartphones and tablets, the proportion of revenue Dialog derives from its top five customers will fall to 45% from 85%, he said. Apple itself accounted for 79% of Dialog revenue last year, Credit Suisse analysts noted.

"It makes the company far more resilient against any changes in consumer demand and market volatility," said Bagherli on a conference call. "For us it is a significant de-risking of our position in the market."

The agreement comes little more than a year after merger talks between Dialog and Austria's AMS (AUKUF) broke down and less than a month after Atmel, led by president and CEO Steve Lamb, announced the launch of a strategic review, which The Deal predicted at the time could result in a $4 billion sale.

Microchip Technology (MCHP) - Get Microchip Technology Incorporated Report , Intel (INTC) - Get Intel Corporation Report and Taiwan's MediaTek were all seen as likely suitors, as was Qualcomm (QCOM) - Get Qualcomm Inc Report , which is conducting its own strategic review following pressure from Jana Partners.

The Dialog offer for Atmel is worth $10.42 per Atmel share, split into $4.65 in cash and 0.112 of a Dialog share, and would leave Atmel shareholders with 38% of the combined company.

At $10.24 per share, based on Dialog's Friday closing price, it's a 43% premium to Atmel's closing price of $7.27 on Nasdaq on Friday. Dialog would pay $4.6 billion for the stock but the enterprise value of the deal falls to $4.4 billion, since Atmel has about $200 million of net cash.

Dialog shares in Frankfurt were down almost 16% at €38.14, valuing the stock at €2.97 billion ($3.35 billion). The shares fell in anticipation of an issue of 49 million American Depositary Shares to Atmel stockholders to cover 55% of the purchase price and amid some skepticism the enlarged company will easily meet its long-term operating margin target of 23% to 25%; the standalone operating margin for the larger Atmel in the past 12 months was 13%, according to the companies' presentation, while Dialog's operating margin was 23%.

The deal at a stroke would more than double Dialog's annual sales to about $2.7 billion, based on revenue for the two companies over the past 12 months, when Atmel's revenue was $1.35 billion and Dialog chalked up $1.34 billion.

Bagherli would remain in place, while Atmel gets two board seats as part of the deal.

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The agreement continues a long line of M&A transactions in the semiconductor sector, including NXP Semiconductors' (NXPI) - Get NXP Semiconductors NV Report March deal worth $16.7 billion to buy Austin, Texas' Freescale Semiconductor and Intel's June agreement, also worth $16.7 billion, to buy Altera (ALTR) - Get Altair Engineering Inc. Class A Report .

Dialog, which is based in London but listed in Frankfurt, said it expects savings of $150 million within two years of combining with its Californian peer. The acquisition would boost earnings per share in 2017, the first full year, Dialog predicted.

Credit Suisse analysts, who have an outperform recommendation on Dialog, said the deal could dilute 2016 earnings by almost 10% before boosting profitability. They called the transaction "much awaited."

They also noted, "Looking at the product offerings and customer exposure for both companies, we would note multiple factors supporting the rationale for the deal." 

Funding will include a new $2.1 billion financing package from Morgan Stanley with an interest rate of 4% and early repayment options, Bagherli said.

That would put Dialog's net debt to earnings before interest, taxes, depreciation and amortization ratio at three times on closing, but Bagherli predicted this would fall to two times within 12 months and that Dialog would have "substantially repaid" the loan in three years.

The transaction is expected to close in the first quarter once regulatory approvals are in the bag.

Advisers include a Jones Day team led by Khoa Do and Daniel Mitz for Atmel. Scott Wornow is leading the internal legal team at Atmel, while Qatalyst Partners' George Boutros and Jason DiLullo are its financial advisers.

Morgan Stanley bankers, including Mark Solomons, are Dialog's financial advisers. Davis Polk & Wardwell lawyers, including William Kelly and Steve Salmon, and Reynolds Porter Chamberlain are providing its legal advice.

David Marcus contributed to this report.