ARM Holdings has bought Artisan Components, the US technology company, for $913 million (£502 million) in a drive to increase its grip on the computer chip design market.
ARM shares plunged 19 per cent on fears that it had overpaid, wiping nearly £200 million from its stock market value.
The company said that the merger would create “one of the industry’s broadest portfolios” of chip technology, which would be sold to an “extensive” customer base. Artisan, based in California, has licensed its technology to more than 1,000 companies worldwide with ARM claiming “relationships” with more than 130 chip manufacturers.
Robin Saxby, the ARM chairman, said: “Artisan has a proven sales channel which will be highly complementary with the ARM sales channel.”
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The merger of patent portfolios would allow the companies better to exploit a move towards increasingly intricate chips as manufacturers seek to produce smaller and faster chips.
Warren East, the ARM chief executive, said: “As systems design complexity increase in deeper sub-micron technologies, so does the need for strong links between all aspects of [chip design] development.
“Combining forces with Artisan will enrich and expand our total intellectual property offering.”
Mr East and Mr Saxby will retain their positions after the deal, with Mark Templeton, the Artisan chief executive, and Lucio Lanza, its chairman, joining the ARM board.
The deal, which follows technological collaboration last year, was welcomed by analysts as a strategic advance although many questioned the $33.89 value it put on Artisan stock. The sum will be paid in cash and ARM shares.
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Durlacher, the UK broker, said: “ARM’s acquisition of Artisan looks expensive. While we see the logic of the acquisition the terms will frighten UK investors.”
ARM shares stood 17.25p lower at 83.25p in afternoon trade after hitting 81.5p earlier.