Synopsys buys chip design software maker Magma for $507M

In a big strategic shift for the chip design software industry, Synopsys said today it plans to buy Magma Design Automation for $507 million.

The deal leaves two juggernauts in electronic design automation software (EDA) — Synopsys and arch rival Cadence Design Systems — to battle it out as the software of choice for engineers who design electronic chips. Synopsys is buying Magma for $7.35 a share in cash, a 29 percent premium to Magma’s closing price today of $5.72.

San Jose, Calif.-based Magma Design Automation is a publicly traded company. The merged companies will compete with Cadence and Mentor Graphics for billions of dollars in revenues related to tools that can be used to automatically design and lay out chips. Chips are so complex these days that they often have billions of components known as transistors on a single piece of silicon.

Mountain View, Calif.-based Synopsys reported fiscal fourth quarter revenue today of $390.5 million, up 4 percent over a year ago, and adjusted earnings per share of 46 cents.

The combined goal of the companies is to create tools that enable more profitable chips, meaning they create chips that improve performance, have smaller sizes and costs, and lower power consumption. Rajeev Madhavan, founder and chief executive of Magma, said the combined companies would ensure that chip designers have access to advanced technology to design chips at 28 nanometers and below. A nanometer is a billionth of a meter, and the automated design tools are the only way to create complex chips with such tiny dimensions. The merger is subject to closing conditions.