The offer price of US$125 per share represents a premium of 14% to Mellanox’s Friday close.

Mellanox, based in Israel and the United States, makes chips and other hardware for data centre servers that power cloud computing. The company had a market capitalisation of about US$5.9 billion at the end of trading on Friday.

Shares of Mellanox rose 8.8% and Nvidia shares fell 1.3% in premarket trading.

Nvidia has been pushing more into networking and connectivity with its own tailored solutions and Mellanox would bring further expertise along these lines, Bernstein analyst Stacy Rasgon said.

The deal is being announced after a competitive bidding process where other chipmakers such as Intel and Xilinx also bid for it, according to sources familiar with the matter. Reuters reported about the deal on Sunday.

Intel declined to comment on whether the company had for Mellanox.

The acquisition is a win for the New York-based activist investor Starboard Value, which owns a 5.8% stake and had reached a deal with Mellanox last year over the composition of its board.

Data centre revenue accounts for nearly a third of Nvidia’s sales. The chipmaker has grown at a rapid pace in the past few years under CEO Jensen Huang, but a slowdown in China and a fading cryptocurrency craze have started to weigh on its sales in recent quarters.