Under the deal, each share of Level One (LEVL) would be exchanged for 0.43 share of chipmaker Intel (INTC). At that price, the deal values Level One at 48-3/4 a share, an 80 percent premium to Level One's Thursday closing price of 27-1/8.

"We believe this yields a fair value for our shareholders," Bob Pepper, Level One's CEO, told analysts in a conference call.

Market expansion

Level One makes high-speed chips with built-in communication features for network equipment manufacturers. Intel, the world's largest chipmaker, has been anxious to expand beyond the traditional microprocessor market.

"The objective of this deal is clear," Mark Christensen, vice president and general manager of Intel's Network Communications Group, said. "We'dlike to be the leading provider of silicon building blocks."In a conference call with reporters, Christensen said the company "will buy, develop or license whatever it takes to be number one in the industry."

Intel reported record revenues last year of $26.3 billion, up 5 percent from the previous year. But net income was $6.1 billion, down 13 percent from $6.9 billion in 1997. By comparison, Level One reported fiscal 1998 revenues surged 68 percent to $263 million and net income rose to $22.9 million from $6.6 million. In a statement, the companies said the deal is aimed at bringing customers advanced networking capabilities by offering increased bandwidth.

"Today's announced merger extends our strength in networking and communications," said Craig Barrett, president and chief executive of Intel. "It provides us with the silicon building blocks necessary to supply the rapidly growing demands created by the Internet and e-commerce."

No layoffs

The deal won't mean job losses at Sacramento,Calif.-based Level One, the company said. And Santa Clara, Calif.-based Intel will keep its well-known microprocessor unit separate. Level One employee stock options, meanwhile, will be replaced with Intel options.

The $2.2 billion deal dwarfs Intel's last acquisition -- the October purchase of virtual private network specialist Shiva Corp. for $165 million.

The Level One deal also marks the first time Intel has used its highly valuable stock as currency for an acquisition. The news was announced after the close of trading in New York Thursday

However, in after-hours dealings, shares of Level One surged to 46-5/8 from the New York close of 27-1/8. Intel was up marginally to 113-5/8 from 113-3/8.