Chip assemblers

ChipPAC

(CHPC)

and

ST Assembly Test Services

(STTS)

said they've reached a definitive agreement on a stock-swap merger valued at approximately $1.6 billion.

The new company expects to generate more than $1 billion in revenue in 2004. Shares of ChipPAC, based in Fremont, Calif., ended Monday's action at $7.90, up 4% on the session. The stock of Singapore's ST Assembly added a penny to $13.34. The ST Assembly offer values ChipPAC shares at roughly $11.60, a 47% premium.

Terms call for ChipPAC holders to receive 0.87 of an ST Assembly American depositary share for one common share of ChipPAC. ST Assembly and ChipPAC shareholders will own approximately 54% and 46% of the combined company, respectively.

ST Assembly Chairman Charles Wofford will remain chairman of the combined company. Dennis McKenna, chairman and chief executive officer of ChipPAC, will be the vice chairman. Tan Lay Koon, president and CEO of ST Assembly, will be president and chief executive officer of the combined company.

ChipPAC and ST Assembly are currently the fourth-largest and fifth-largest chip assemblers in the quickly consolidating chip assembly sector. The proposed deal makes the combined company the third-largest behind Taiwan's

Advanced SemiConductor Engineering

(ASE)

and U.S.-based

Amkor Technology

(AMKR) - Get Report

.

The deal allows ST Assembly to gain a foothold in the quickly growing north Asian chip market by taking over ChipPAC's plants in China and South Korea. Chip assemblers take chips made by their customers, test them and then encase them in plastic packages so they can be inserted into circuit boards.

"We will be the only global player with major manufacturing facilities in all of the world's major foundry hubs -- Taiwan, China, Korea and Singapore," said Dennis McKenna in the release announcing the agreement.