Semiconductor companies NXP and Freescale have announced plans to merge, creating a new entity worth $40 billion with a combined revenue of over $10 billion.

Announced over the weekend, the companies -- based in Eindhoven, The Netherlands and Austin, Texas -- will come together under a definitive agreement for NXP to purchase its smaller rival firm.

The merger will create a new entity which will become the market leader in automotive semiconductor solutions and general purpose microcontroller (MCU) products, according to the companies.

Under the terms of the agreement, Freescale shareholders will receive $6.25 in cash and 0.3521 of an NXP ordinary share for each Freescale common share held until the buyout is complete. The purchase price approximates an equity value for Freescale of approximately $11.8 billion -- based on NXP's closing stock price as of February 27 this year -- and a total enterprise value of approximately $16.7 billion including the semiconductor firm's net debt.

Once the merger has taken place, the firm's shareholders will own roughly 32 percent of the new entity.

NXP will fund the purchase through $1 billion in cash, $1 billion in debt and roughly 115 million ordinary shares. The transaction will be accretive to NXP non-GAAP earnings and non-GAAP free cash flow. NXP predicts cost savings of $200 million in the year following the deal's closure, with a clear path paved to $500 million annual cost synergies.

NXP CEO Richard Clemmer will continue to act as President and CEO of the merged company. Clemmer believes the deal will generate additional profits, and NXP "expects to continue to significantly out-grow the overall market."

Gregg Lowe, Freescale Semiconductor President and CEO said:

"We believe this merger, which combines two highly successful and complementary companies, will create significant value for Freescale's and NXP's shareholders, customers and employees. Both companies have built leadership positions and have a sharp focus on delivering superior value to customers.



Our combined scale, size and global reach will position our new company to deliver sustainable above market growth. It will also serve to accelerate the strategic plans both companies have invested in, enabling us to deliver more complete solutions to customers."

The transaction, unanimously approved by both director boards, is expected to close in the second half of the calendar year, 2015.

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