updated 6/16/2005 8:28:28 PM ET 2005-06-17T00:28:28

Integrated Device Technology Inc. has agreed to buy rival chip maker Integrated Circuit Systems Inc. in a cash-and-stock deal valued at $1.7 billion. ICS shares rose more than 10 percent Thursday.

The agreement will form a company that supplies relatively obscure but essential chips to makers of communications gear, computers and other electronic devices. The merger, announced Wednesday, is expected to close in the fall, after shareholder and regulatory approval.

The combined company, which will retain IDT's name and be based in San Jose, will have the resources to pursue growth, said Greg Lang, IDT's chief executive.

"Combining our resources will allow us to pursue these opportunities more effectively than we could as separate entities," Lang said.

Under the deal approved by both companies' boards, ICS stockholders will receive 1.300 shares of IDT common stock and $7.25 in cash for each share of ICS stock. At Wednesday's closing price, that valued ICS at $1.7 billion, or $23.54 per share.

Lang will be the chief executive of the combined company, while ICS CEO Hock Tan will become chairman. Its nine-member board will have directors designated by IDT, with four named by ICS.

In the year ending March 31, IDT and ICS had combined sales of about $645 million and a cash flow of $86 million, the companies said.

Santa Clara, Calif.-based IDT, which was founded in 1980, mainly supplies chips that perform calculations and switching functions in networking gear. It counts Cisco Systems Inc., Nortel Networks, Lucent Technologies Inc. among its customers.

Recently, IDT has branched out into timing chips that handle clock functions in computers.

Norristown, Pa.-based ICS specializes in timing chips used in computers, consumer electronics, networking gear and military applications, the company said.

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