Renesas Electronics and Dialog Semiconductor said they had agreed a deal where the Japanese chipmaker will buy the Frankfurt-listed design bureau for €4.9 billion in cash.
Renesas, one of the world's biggest auto chip makers, has offered €67.50 a share for the Apple supplier.
This represented a 20% premium to Friday's closing price and a 52% premium to a weighted three-month average.
"The transaction we announced today represents our next important step in catapulting Renesas' growth plan," said Hidetoshi Shibata, President and CEO of Renesas, of the latest in a string of acquisitions in recent years.
Dialog said the agreed deal represented a "compelling opportunity" for its shareholders. Its board of directors would unanimously recommend the offer.
Dialog shares traded 16% higher in Frankfurt at €65.30 this morning, just shy of the agreed sale price.
The Anglo-German chip designer confirmed yesterday that it had received an offer from Renesas in response to news reports it was a takeover target.
The agreed deal comes after Renesas and Dialog agreed in August to cooperate in automotive computing platforms, while a global shortage of semiconductors has forced some car makers to curb production.
It also follows a series of acquisitions by Renesas in recent years, underpinned by its quest to increase its share of analogue chips used to process signals for things such as sound, light and temperature.
Renesas has a market share of around 30% for microcontrollers used in cars.
It bought US chip design firm Integrated Device Technology in 2018 for $6.7 billion following the $3.2 billion purchase of US chipmaker Intersil in 2017.
Renesas said it would issue up to 270 billion yen ($2.6 billion) in new shares to help fund the deal.
It anticipates incremental revenue growth from the deal of about $200m in four to five years after the deal close, while cost savings of $125m would materialise over three years.
Dialog specialises in power-management chips and low-energy Bluetooth products used in fitness trackers and cordless earphones.
It agreed in 2018 to transfer people and patents involved in designing the main power management chip used in iPhones to Apple in a $600m deal that left it a smaller and more broad based business.
"We have successfully executed on a diversification strategy that positions Dialog for high growth," said Dialog CEO Jalal Bagherli, praising the fit of its platform with Renesas' embedded computing, analogue and power portfolio capability.
Apple spends more on silicon for its iPhones than the entire car industry, estimates Mirabaud analyst Neil Campling, in one indicator of the technology gap that automotive suppliers need to close as more electric and self-driving cars hit the streets.