Hard-disk drive maker Western Digital will buy SanDisk in a US$19 billion (A$26.3 billion) deal that will increase its ability to make flash memory storage chips used in smartphones and tablets.
SanDisk shares hit a high of US$78.50 today but closed nearly US$10 below the offer price of US$86.50 in cash and stock, a fact that analysts attributed to the deal's complexity.
Western Digital said the value of the transaction hinges on the closing of an investment in the company by Unisplendour, a unit of China's state-backed Tsinghua Holdings.
Unisplendour said in September it would buy 15 percent of Western Digital for US$3.78 billion, a deal that is likely to face regulatory scrutiny amid national security concerns.
Western Digital CEO Steve Milligan said the SanDisk acquisition would ultimately dilute Unisplendor's stake, and he was highly confident it would be approved by regulators.
"There's always a risk and you're not done until you're done, but we were careful and consulted with US government experts," he said.
Western Digital's move to buy SanDisk is the latest in a flurry of deals in the US semiconductor industry, which has been hit by a supply glut and cheaper products from China that have driven down memory chip prices.
Also today semiconductor equipment maker Lam Research agreed to buy rival KLA-Tencor in a deal valued at about US$10.6 billion.
Research firm Gartner said in October that worldwide semiconductor sales were expected to fall for the first time in three years in 2015, due partly to increasingly saturated market for smartphones.
Western Digital, a major player in the traditional storage industry, needs access to SanDisk's NAND technology to better compete in the market for solid-state drives used in cloud computing, data centers, smartphones and laptops.
Western Digital said it had the support of SanDisk partner Toshiba, which has some rights that could block a deal.
SanDisk has an intellectual property sharing joint venture with the Japanese company and uses its foundries to make chips.
Toshiba spokeswoman Midori Hara said the deal would not have a negative impact on that joint venture.
Shares of Western Digital, which also suspended its share buyback program, were down 1.4 percent at US$73.85.