NEW YORK (TheDeal) -- Chipmaker Avago Technologies (AVGO - Get Report) said Monday it would acquire LSI Corp. (LSI - Get Report) in a $6.6 billion cash deal that would expand the buyer's reach into the storage chip market.

Terms call for Singapore-based Avago to pay $11.15 per share for LSI, a premium of 41% to the target's Friday close. Avago said it would fund the deal in part via a $1 billion investment from private equity firm Silver Lake Partners, which is buying a seven-year convertible note in the company.

LSI, of San Jose, Calif., is a maker of storage chips used in data centers, flash drives and hard disks. Avago, which specializes in wired infrastructure, wireless and industrial chips, said that the purchase would leave it well positioned to benefit from growth in mobile data and data centers. The deal "positions Avago as a leader in the enterprise storage market and expands our offerings and capabilities in wired infrastructure, particularly system-level expertise," company CEO Hock Tan said in a statement. "This combination will increase the company's scale and diversify our revenue and customer base."

The purchase was billed as the largest cash deal yet between two strategics in the semiconductor sector, and the biggest semiconductor deal since the 2006 leveraged buyout of Freescale Semiconductor (FSL) for $17.6 billion. Avago said it expects the deal to contribute to non-GAAP free cash flow and earnings per share immediately, with the company estimating $200 million in annual operating synergies by the end of fiscal 2015. The deal will be funded with $1 billion in cash on hand as well as the new Silver Lake capital and a $4.6 billion term loan from a banking consortium.

Silver Lake has been involved with Avago since 2005, when it partnered with Kohlberg Kravis Roberts & Co. to buy the company from Agilent Technologies A for $2.7 billion. Avago went public in 2011.

LSI chief executive Abhi Talwalkar said the deal "provides immediate value to our stockholders, and offers new growth opportunities for our employees to develop a wider range of leading-edge solutions for customers."

Chris Colpitts, David Locala and Mark Keene of Deutsche Bank AG are advising Avago.

-- Written by Lou Whiteman