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CORRECTED-UPDATE 2-Tech licensing firm Tessera to buy DTS to grow in audio market

(Corrects to say "provider of audio technology" not "maker of audio equipment" in fourth bullet and first paragraph)

* Tessera to pay $850 mln in cash

* Deal for $42.50 per share, a 24 pct premium

* Tessera licenses mainly for chips and imaging

* DTS provides audio technology for mobiles and other devices

* DTS shares up nearly 23 pct, Tessera up 2.4 pct

By Aishwarya Venugopal and Rishika Sadam

Sept 20 Tessera Technologies Inc, which licenses technology mainly to the semiconductor industry, said it would buy DTS Inc, a provider of audio technology for mobile devices, home theater systems and cars, for about $850 million in cash.

Tessera's technology licenses include semiconductor packaging and imaging products for mobile and other vision systems, while DTS's strength lies in audio technology, where its licenses are used in more than 2 billion products.

The combined company will have a major presence in the consumer electronics, mobile, automotive and semiconductor markets, with its customers including Microsoft Corp, Qualcomm Inc and Sony Corp.

DTS shares were up nearly 23 percent at $42.22, just shy of Tessera's offer of $42.50 per share and at their highest levels since July 2011. Tessera's shares were up 2.45 percent at $34.30 in morning trading on Tuesday.

The combined company will generate an estimated $450 million in proforma revenue for 2016, nearly half of which will come from product licensing, Tessera said.

Tessera said it expects the deal to immediately add to its earnings per share and free cash flow.

The company said the deal would be financed through available cash on hand and about $600 million of debt financing from RBC Capital Markets.

The combined company will have a new corporate name and stock symbol after the deal closes. It will be led by Tessera Chief Executive Tom Lacey, while DTS CEO Jon Kirchner is expected to join as president.

The deal is expected to close by late in the fourth quarter or early in the first quarter, Tessera said.

The combined company is expected to realize $15 million in annualized cost synergies within the first 12-18 months following the closing of the deal, Tessera said.

GCA is Tessera's financial adviser and Skadden, Arps, Slate, Meagher & Flom LLP its legal adviser.

Centerview is DTS's financial adviser and DLA Piper LLP gave legal counsel. (Reporting by Rishika Sadam and Aishwarya Venugopal in Bengaluru; Editing by Savio D'Souza and Saumyadeb Chakrabarty)

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