Semiconductor maker Analog Devices Inc said on Monday it would buy rival Maxim Integrated Products Inc for about 21 billion U.S. dollars in the largest U.S. deal this year, aimed at boosting its market share in automotive and 5G chipmaking. 

The deal, which is also ADI's biggest, will create a chipmaking force with a combined enterprise value of about 68 billion U.S. dollars that will compete with larger rivals including Texas Instruments.

ADI Chief Executive Vincent Roche told Reuters in an interview the combined engineering teams would help the resulting company design more specialized, higher-margin chips for customers such as automakers.

"If you're doing commodities, you're at the mercy of the heavy hammer of the procurement folks," Roche said. "But our game is about getting there first, getting out on the edge and making a real impact at the application level for our customers."

ADI approached Maxim in mid-April after both companies' stocks had slowly recovered from the bottom since the COVID-19 pandemic hit the United States, according to a person familiar with the matter. ADI, which once viewed the premium to buy the rival too high, believe using an all-stock deal could take advantage of the ratio amid a volatile market. Over the last three months, the deal was negotiated through virtual meetings.

The companies said the deal added Maxim's strength in automotive and data center markets to ADI's broad industrial, communications and digital healthcare segments.

Based in Norwood, Massachusetts, Analog Devices provides sensors, data converters, amplifiers and other signal processing products to a range of industries from transportation and healthcare to instrumentation and portable consumer devices.

San Jose, California-based Maxim designs and manufactures analog chips that are used in cars, manufacturing, energy, communications, healthcare and connected devices.

Reuters had reported on Sunday night that ADI was in advanced talks to acquire Maxim.

The offer values Maxim at 78.43 U.S. dollars per share, a premium of about 22 percent to its Friday close and Maxim closed up 8.1 percent at 69.29. U.S. dollars Analog shares closed down 5.8 percent at 117.25 U.S. dollars.

Under the terms, Maxim stockholders will receive 0.630 of Analog stock for each share they own, the companies said in a statement.

The deal is expected to add to adjusted earnings of the combined entity in about 18 months following the close, with 275 million U.S. dollars in cost savings by the end of year two, they said.

While the deal requires approvals from regulators in the United States, China and Europe, the companies believe they do not need many divestitures given the limited overlap of their businesses, according to people familiar with the deal.

Two Maxim directors, including Chief Executive Officer Tunç Doluca, will join ADI's board. Morgan Stanley served as financial adviser to ADI, as well as BofA Securities. J.P. Morgan served as financial adviser to Maxim.

(Cover: The Maxim Integrated logo is seen in this illustration photo January 30, 2018. /Reuters)