LOS ANGELES (Bloomberg) — Marvell Technology Group Ltd, a microchip maker domiciled in Bermuda, has agreed to pay $6 billion to acquire Cavium.

The buyer will pay $40 in cash plus 2.1757 Marvell common shares for each Cavium share, according to a statement yesterday. Marvell plans to use $1.75 billion in debt financing to fund the transaction.

Cavium shares rose to a record yesterday, while Marvell also gained.

The main business of Marvell, which is run from Santa Clara, California, is in chips that control hard disk drives, a market that’s no longer growing as new technology begins to take over data storage. Cavium, which is based in San Jose, California, makes networking processors and is one of several companies trying to use ARM Holdings technology to break into the server microprocessor market.

It’s an ambitious move because Intel, the world’s largest chipmaker, dominates the sector with a 99 per cent share.

The deal was expensive but necessary to help both companies compete with the giants of the semiconductor industry, including Intel, Qualcomm Inc and Broadcom Ltd, Kevin Cassidy, an analyst with Stifel Nicolaus & Co, said in a note. Cost savings could add 10 per cent to the combined company’s annual profit, he said.

The acquisition of Cavium is the biggest deal for Marvell chief executive officer Matthew J. Murphy, who took the role last year after an accounting scandal forced the resignation of his predecessor. “This is an exciting combination of two very complementary companies that together equal more than the sum of their parts,” Murphy said in a statement.