British bluetooth firm CSR Plc, a leading manufacturer of Bluetooth chips and devices, is to buy out US chip firm SiRF Technology Holdings Inc in a $136-million, all-share deal to bolster it in a slowing technology market.

The combined company would probably become one of the top ten 'fabless chip' designers, with nearly a billion dollars in revenue.

Under the agreement, SiRF stockholders will receive 0.741 of a CSR share for each share of SiRF common stock they own, or $2.06 of CSR stock for each SiRF share. That represents a 91 per cent premium over SiRF's stock price on 9 February.

When the transaction closes, SiRF stockholders will own approximately 27 per cent of the merged companies and CSR shareholders are expected to own approximately 73 per cent. The boards of both companies unanimously approved the deal, which is expected to close in the second quarter of 2009.

Customers of the combined company include four of the top five mobile handset manufacturers, and the top five personal navigation device makers. The news comes less than a month after a U.S. trade panel ruled that SiRF infringed on three of Broadcom's GPS patents and barred SiRF imports of the products.

"Our ability to offer customers both leading edge location and connectivity technologies will be a key competitive advantage," said Dado Banatao, chairman of Sirf, in a release.

Both Banatao and Kanwar Chadha, SiRF's co-founder and vice president of marketing, will join the merged company's board.

CSR, formerly Cambridge Silicon Radio, said the deal would lead to a stronger combined balance sheet, better customer relationships and technology leadership. On Tuesday CSR reported fourth quarter revenue at the bottom of the range forecast by the company, and said it expected demand to remain weak during 2009.

However, CSR Chief Executive Joep van Beurden said the combined group would have the necessary product range once global markets recovered. "GPS (in cellphones) is expected to grow very rapidly over the coming years," he told reporters. "Our customers are asking for combinations of bluetooth and GPS." He said he foresaw no competition hurdles because the companies were strong in different segments.

A pioneer in GPS technology, SiRF is best known for its SiRFstar range of GPS chips, which are used by TomTom, Garmin, Palm, and others. However, the pioneer of GPS technology faces increasing competition from larger rivals like Texas Instruments, Broadcom and Infineon.

CSR has traditionally specialised in Bluetooth chips, more recently concentrating on highly integrated all-in-one circuits that combine Bluetooth with other radio functions like Wi-Fi and FM reception. Lately, it has been promoting 802.11n for mobile applications, although industry uptake is still slow.

Van Beurden said the companies could shave $35 million - or 10 per cent -- from their combined cost base following the merger, which is expected to close late in the second quarter.

Market watchers generally hailed the move. Lee Simpson, an analyst at Jefferies International, told Reuters that although the deal was not without risk, it could deliver cost, product and strategic synergies.

"CSR was difficult to like as a Bluetooth - only play, while SiRF was doubly unlikeable as a GPS play," he said. "It makes good sense - radio chips are combining Bluetooth, GPS and Wi-Fi, and CSR needs to own that space."