Verigy Ltd received a $908 million cash offer from Advantest, its rival and No. 2 chip tester, as the Tokyo-based firm looks to unseat Teradyne as the global leader.
An Advantest-Verigy combine could control as much as 48 percent of the global chip testing market, ahead of Teradyne's 40 percent, said MKM Partners analyst Keith Moore.
Chipmakers rely on companies like Verigy, Advantest and Teradyne to test the efficiency and quality and a bounce in demand for chips driven by smartphone and tablet sales has opened up a window of opportunities for the testing firms.
Advantest, which had earlier offered $12.15 per share, sweetened its bid to $15 a share, Verigy said.
The bid is at a premium 19 percent to Verigy stock's Wednesday close on Nasdaq. It is nearly 66 percent higher than Verigy's share price before the initial offer on December 6.
The (Advantest) bid is at a good level. It would be hard for Verigy to tell its shareholders that they should not pursue it on a valuation basis, analyst Moore said.
Verigy had agreed to buy smaller rival LTX-Credence Corp in November.
In December, Advantest approached Verigy with a $728.8 million buyout offer but was rejected by the Cupertino, California-based company as not being superior to its pending transaction with LTX-Credence Corp.
The Verigy board has still not recommended the Advantest proposal and continues to recommend the LTX Credence acquisition to its shareholders.
We are a little surprised that Verigy did not accept this (revised Advantest) offer, Stifel Nicolaus analyst Patrick Ho said in a note.
Advantest, which counts Intel Corp among its customers for memory testing equipment, is valued at about $4.50 billion, according to Thomson Reuters data.
For the year ended October 31, Verigy had total sales of $539 million, up from $323 million in the prior year. Teradyne has seen sales nearly doubling to $1.29 billion for the nine months ending October 3.
Teradyne shares have gained 25 percent in value over the last six months, while Verigy shares have jumped 63 percent.
Verigy, with Morgan Stanley as its financial adviser, expects to continue talks with Advantest regarding the revised offer as the deal may face potential antitrust issues.
The Federal Trade Commission may frown on such a deal as the combined company along with Teradyne would control nearly 90 percent of the total market, analyst Moore said.
What Verigy is worried about is that if they pursue this $15 offer and forego their bid for LTX Credence, they could be left open-ended for many many months, he said.
Car-rental firm Avis Budget's acquisition of Dollar Thrifty Automotive Group is currently deadlocked in antitrust probe for the last several months due to a similar situation.
Verigy shares were up 95 cents, or 8 percent, at 13.58 in late morning trade on Thursday on Nasdaq. LTX-Credence shares were down 4 percent at $7.48.
(Reporting by Saqib Iqbal Ahmed; Editing by Jarshad Kakkrakandy and Gopakumar Warrier)