NEW YORK (The Deal) -- Cypress Semiconductor  (CY - Get Report) has launched a bidding battle for the Milpitas, Calif.-based Integrated Silicon Solution  (ISSI), just two months it agreed to be acquired by a Chinese consortium of investors in amid a campaign by activist investor Starboard Value.

Cypress Semiconductor said Wednesday after markets closed that it had offered to acquire Integrated Silicon for $19.75 a share in cash, in a deal worth about $627.3 million.

"We believe that our proposal clearly constitutes a superior proposal," T.J. Rodgers, CEO and president of Cypress, wrote in a letter to Integrated Silicon's board. "Cypress and its financial and legal advisers [are] ready to engage in discussions regarding our proposal immediately.

"We would have preferred to participate in your sale process, but were not contacted," Rodgers added.

Shares of Integrated Silicon Solution shot up more than 7% on Thursday morning to $20.09, giving the company a market capitalization of $638.3 million. The stock's price at the market's close was $20.14.

Cypress' share price rose about 2.6% on Thursday morning, to $12.98, giving the San Jose, Calif.-based chipmaker a market capitalization of about $8.6 billion. At the market's close, the shares was $13.14.

For Integrated Silicon, the bid from its larger peer comes after it agreed in March to a sale to a consortium of private equity firms led by Summitview Capital for $19.25 per share in cash, or about $611.4 million. The consortium also includes eTown MemTek, Hua Capital Management and Huaqing Jiye.

About four months before the consortium made its bid, Jeffrey Smith's Starboard Value launched an activist campaign at Integrated Silicon along with fellow hedge fund Oliver Press Partners in late November.

The duo argued that Integrated Silicon's shares were trading at a substantial discount to those of its peers partly because of its noncore acquisitions and that the company should focus on profitable and growing core businesses.

Back then, the activists also pointed to issues with the company's board structure. They asserted there might be potential conflicts of interest because the vice chairman of the board is also the company's executive vice president reporting to the CEO, but the CEO also has to report to the board. The shareholders said they intended to nominate five directors to the company's board at its annual meeting.

A source familiar with the situation had told The Deal at the time that while a number of companies had approached Integrated Silicon in the past, the board had not been open to discussions about the company's being acquired.

Cypress Semiconductor and Spansion  (CODE) had been considered as potential merger partners for Integrated Silicon in the past, this source said.

Industry sources agreed that Cypress and Spansion had been the two most logical buyers for Integrated Silicon, but some had wondered whether they would look to acquire the chipmaker following their own $9 billion merger agreement.

Though Cypress' offer is not binding, the chipmaker is likely to pursue this deal, said Richard Shannon, an analyst at Craig-Hallum Capital Group, via phone on Thursday.

"Cypress is a very serious company, and they typically don't do this unless they want to finish it," Shannon said. "The bigger question is whether the Chinese consortium comes back and makes another offer."

At the same time, the consortium had proposed to pay what was already a healthy price, he said, adding that the Chinese government wants to grow its domestic chip industry.

Some industry sources previously said that a higher offer for Integrated Silicon was unlikely.

Still, a source close to the matter said via phone Thursday that Cypress had always been a logical buyer for Integrated Silicon.

"This is just starting. Cypress is the obvious strategic buyer," the person said, adding that a marriage between Cypress and Integrated Silicon is "definitely better."

Integrated Silicon was scheduled to hold a special meeting of shareholders in June to consider and vote on the proposed acquisition by the consortium of Chinese investors, and this meeting will be postponed, this person added.

Integrated Silicon, Cypress and Summitview could not be immediately reached Thursday morning.

The semiconductor sector has been rapidly consolidating in recent months.

Earlier this month, Micrel  (MCRLagreed to a sale to Microchip Technology  (MCHP - Get Report) for about $839 million, also following pressure from Starboard Value. In April, OmniVision Technologies  (OVTIagreed to a $1.9 billion buyout by a group of Chinese investors. (Hua Capital, which is part of the group that offered to buy Integrated Solution, led OmniVision's acquisition.)

In March, Microsemi  (MSCCpaid $389 million for Vitesse Semiconductor  (VTSS).

More deals in the sector are also on the horizon.

Nvidia  (NVDA) is examining options for its Icera unit, though industry followers have said that it will likely shut down its mobile processor business. Exar (EXAR) has also launched a strategic review, and people in the industry believe the most likely scenario is a sale that could value the chipmaker at about $600 million.

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