KLA-Tencor stockholders will be entitled to elect to receive $32 in cash and 0.5 of a share of Lam Research's common stock, in all-cash, all-stock, or mixed consideration, the company said in a statement.
The offer of about $67.02 per share represents a 24 percent premium to KLA-Tencor's closing price on Tuesday.
"The pairing of Lam Research and KLA-Tencor brings industry leadership in process and process control together, accelerating our capability to address our customers' most difficult challenges as they scale to meet the market demands of lower power, higher performance, and smaller form factors," Lam Chief Executive Martin Anstice said.
Anstice will be the CEO of the combined company, which will be called Lam Research and continue to trade on the Nasdaq.
The deal is expected to close in mid-2016.
Goldman Sachs is acting as the financial adviser to Lam Research and Jones Day is providing legal counsel. Qatalyst Partners is acting as financial adviser to KLA-Tencor and Wilson Sonsini Goodrich & Rosati is providing legal counsel.