Nvidia beats out rivals to buy Mellanox for $6.9B

Nvidia has emerged as the winner in a scramble to buy chipmaker Mellanox Technologies, the company announced on Monday.

The $6.9 billion deal, which is expected to close at the end of the year, will give Nvidia a large foothold into the booming market for data center and supercomputer components. Santa Clara, California-based Nvidia is paying $125 per share in its all-cash deal to buy Mellanox, which is based in Israel and the United States.

The sales price was a 14% premium over Mellanox's closing share price of $109.38 on Friday. Mellanox had a market capitalization of about $5.9 billion at the close of  trading on Friday. The acquisition of Mellanox is the largest deal in Nvidia's history.

Rival chipmakers were also in hot pursuit of Mellanox. In January, Intel reportedly bid up to  $6 billion in cash and stock to buy Mellanox after reports surfaced in November that Xilinx was preparing a $5.5 billion bid.

In October, Mellanox hired a financial adviser to help it look at a possible sale after at least two companies expressed interest, according to CNBC.

RELATED: Intel bids up to $6B to buy Mellanox—report

Late last year, Microsoft, which is a customer of Mellanox, was also reportedly interested in snapping up Mellanox for its hardware components.

With Mellanox, Nvidia will be able to optimize data center-scale workloads across the entire computing, networking and storage stack to increase performance levels while also lowering operating costs, the company said in its release.

Once the deal is completed, the combination is expected to be immediately accretive to Nvidia's non-GAAP gross margin, non-GAAP earnings per share and free cash flow. In January, Nvidia slashed its fourth-quarter revenue estimate by half a billion dollars due to weak demand for its gaming chips in China and slower-than-anticipated data center sales.

The combined companies will power more than half of the world’s 500 biggest computers while also covering “every major cloud service provider and computer maker.”

“The emergence of AI and data science, as well as billions of simultaneous computer users, is fueling skyrocketing demand on the world’s data centers,” said Jensen Huang, founder and CEO of Nvidia, in a prepared statement. “Addressing this demand will require holistic architectures that connect vast numbers of fast computing nodes over intelligent networking fabrics to form a giant data center-scale compute engine."

“We’re excited to unite Nvidia’s accelerated computing platform with Mellanox’s world-renowned accelerated networking platform under one roof to create next-generation datacenter-scale computing solutions. I am particularly thrilled to work closely with the visionary leaders of Mellanox and their amazing people to invent the computers of tomorrow.”