LSI Logic to Buy C-Cube for $878 Million in Stock

Chip maker LSI Logic Corp. said it agreed to buy digital video and audio chip maker C-Cube Microsystems Inc. for $878 million in stock, aiming to strengthen its multimedia entertainment business.

Under the deal, C-Cube stockholders will exchange each of their shares for 0.79 LSI share, valuing C-Cube shares at about $16.35, an 86% premium to their closing price Friday. C-Cube surged $4.94, or 56%, to close at $13.75 on Nasdaq, while LSI fell $2.65, or 13%, to close at $18.04 on the New York Stock Exchange.

LSI forecast that the deal would begin to add to its earnings this year. LSI said C-Cube pioneered the popular MPEG digital video standards and its customers include Sony Corp., Motorola Inc. and Philips Electronics. C-Cube’s chips help to send video and other information through set-top boxes that are connected to the Internet. C-Cube, which reported $265 million in revenue in 2000, employs nearly 600 worldwide. Both companies are based in Milpitas, Calif.