Avago's shares rose nearly 16 percent to $52.97 before the bell on Monday.

The $11.15 per share cash offer is a 41 percent premium to LSI's Friday closing price. LSI shares were trading at $10.98.

LSI's chips are used in storage devices such as hard disks and flash drives.

Avago will fund the deal with a $1 billion investment from private equity group Silver Lake Partners, a $4.6 billion term loan from a group of banks and $1.0 billion of cash in hand, the companies said in a statement on Monday.

The Silver Lake Partners investment will be in the form of a seven-year convertible note.

Avago, which designs, develops and supplies analogue semiconductors, said the deal would immediately add to free cash flow and earnings per share on an adjusted basis.

The company said the deal would help save $200 million in annual costs by the end of the fiscal year ending November 1, 2015, the first full fiscal year after the deal closes.

(Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Sriraj Kalluvila)

Stocks treated in this article : Avago Technologies Ltd, LSI Corp