Microchip, which makes memory and analog chips, has been trying to cash in on the "Internet of Things", like other technology companies such as Intel Corp, Cisco Systems Inc and Nvidia Corp.

Intel set up a business division last year, aimed at making money out of the new technology wave that can link a host of electronic devices.

Zebra Technologies Corp, whose products help companies such as Amazon Inc track inventory and supply chains, said in April it would buy Motorola Solutions Inc's enterprise business to enhance its portfolio of Internet-connected devices.

Microchip's offer of USD 4.74 per share, or T USD 143, is at a premium of 16.7 percent to ISSC's Thursday close of USD 122.50.

The deal values the company at about USD 328.5 million.

After deducting ISSC's cash balance of USD 34.2 million, the deal is valued at USD 294.3 million.

As part of the deal, ISSC shareholder which own about 28 percent of the company's outstanding shares have agreed to divest about 17 percent of their holdings, which represents all unrestricted ISSC shares owned by them.

The deal, which is Microchip's first major overseas acquisition, will be funded with a portion of the company's foreign cash, the company said.

The company also said it would not require any additional borrowings from its line of credit to fund the deal.

Microchip said it expected the deal to add to its adjusted profit per share in the first quarter after the completion of the tender offer.

The company expects to complete the tender offer in the third quarter of calendar 2014.

Microchip's shares were up about 2 percent at USD 47.07 on the Nasdaq on Thursday.