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Qualcomm Nears $3.5 Billion Deal for Atheros

Qualcomm is near a deal to buy Atheros Communications, a semiconductor manufacturing company, for about $45 per share, or $3.5 billion, according to two people with direct knowledge of the talks.

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Qualcomm Sign

A deal could be announced as soon as Wednesday, these people said, adding that the talks are in their final stages but could still fall apart.

The deal would represent a roughly 22 percent premium to where Atheros’s stock traded midday on Tuesday. Atheros stock has jumped about 50 percent off of its lows in September as the outlook for business and consumer spending has improved.

A purchase of Atheros would be Qualcomm’s largest acquisition ever. Over the past year the San Diego-based company has quietly sat on a pile of more than $10 billion in cash, while its arch-rival, Intel, has gone on a buying spree. Last August alone, Intel spent nearly $10 billion acquiring McAfee, the antivirus software maker, as well as units of Texas Instruments and Infineon.

A transaction would continue a string of deals across the technology industry. Tech has been among the busiest sectors for deal activity as well, accounting for about 8 percent of mergers worldwide. Much of the action has been by big companies seeking to bolster their offerings in growing specialties like mobile devices.

A transaction may herald a good start to what deal-makers hope will be another positive year for mergers and acquisitions. Global deal volume rose 23.1 percent to $2.4 trillion in 2010, according to data from Thomson Reuters, as companies have again proved willing to open up their wallets. Large technology companies are sitting on record amounts of cash to spend on deals.

Qualcomm, which has long been a dominant player in supplying chips to wireless phones, has been looking to put its products into tablets and small notebook computers. An acquisition of Atheros would allow Qualcomm, run by Paul E. Jacobs, its chief executive and chairman, to make inroads in these markets.

Atheros, based in Santa Clara, Calif., makes chipsets for a range of wired and wireless devices, from desktops to laptops to tablets. On Monday, it announced two new wireless products that bring Wi-Fi and Bluetooth technology to notebooks and tablets that it says great reduces the impact on the battery life of such devices.

Through the first nine months of 2010, Atheros earned $77.6 million on $700 million of revenue. The company, run by chief executive Craig H. Barratt, has about 1,700 employees. Atheros was co-founded in 1998 by John L. Hennessy, then provost and now president of Stanford University.

The two companies have collaborated before, striking a partnership in 2006 to develop mobile phone chips.

On Tuesday, Arnab Chanda, an analyst with Roth Capital, upgraded Qualcomm, citing among other things royalty opportunities in tablets and other new wireless devices.

While Qualcomm looks to add to its stable of product, it been exiting non-core businesses. Last month, it announced a sale of wireless spectrum licenses to AT&T for about $1.9 billion in a deal that expands AT&T’s fourth generation, or 4G, capacity. Qualcomm had used the spectrum for FLO TV, a mobile television service that it plans to shut down in March.

In late 2009 Atheros became linked to the high-profile insider-trading case against Raj Rajaratnam, the co-founder of the Galleon Group hedge fund. Ali Hariri, a former Atheros vice president, was sentenced in November to 18 months in prison after pleading guilty to giving tips about Atheros to a hedge fund manager.