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Wireless chip maker CSR has agreed to merge with consumer chip maker Zoran in a deal valued at $679 million.

The deal creates a new powerhouse in consumer electronics and wireless technologies. CSR is a leader in personal wireless technologies such as Bluetooth, global positioning system (GPS), FM radio, and Wi-Fi. Sunnyvale, Calif.-based Zoran makes consumer digital technology chips such as those used in cell phones, digital cameras and home entertainment.

Under the deal, Zoran shareholders will receive 1.85 ordinary shares of CSR (in American depository shares) for each share of Zoran common stock. Cambridge, England-based CSR will also return up to $240 million to shareholders via a share buyback program.

The companies say they will integrate their technology to create chips for location-aware, connected multimedia devices. Both are large-scale publicly traded companies. In 2010, Zoran had pro-forma revenues of $441 million.

Zoran has always been strong in imaging and video, making chips for DVD players, digital cameras and other devices by the millions. CSR has a lot of wireless technology. But those technologies now have to be integrated into the same chip for connected digital cameras and other devices.

Both companies have around $50 million. By the end of 2011, the companies anticipate being able to cut around $50 million in costs. The price represents about $13.03 a share on Zoran’s common stock, not counting the $240 million share buyback. The deal is about 65 percent stock and 35 percent cash. And the price is a premium of 39.9 percent over the closing price of Zoran on Friday, at $9.32 a share.

Zoran has about $261 million in cash. Upon completion of the deal, Zoran will own 35 percent of the combined company. CSR executives will run the company, while Levy Gerzberg, CEO of Zoran, will join the CSR board as a non-executive director and Zoran will appoint another independent director. The deal is expected to close in the second quarter.

Joep van Beurden, chief executive of CSR, will lead the combined company. J.P. Morgan Cazenove and Rothschild acted as CSR’s financial advisers and Wilson Sonsini Goodrich & Rosati and Slaughter and May acted as CSR’s legal counsel.  Goldman Sachs & Co. acted as Zoran’s financial advisor and Jones Day acted as Zoran’s legal counsel. CSR’s revenues in 2010 were $800.6 million and its gross profits were $376.6 million.

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