The surprise move aims to combine front-end EDA tools, such as design synthesis, from Synopsys with back-end layout and routing software from Avanti, according to two companies. Synopsys chairman and CEO Aart de Geus said many of his company's largest customers--major IC manufacturers around the world--had been asking for the acquisition.

Under the purchase agreement, Synopsys will exchange 0.371 of its shares for each outstanding share of Avanti stock. The purchase is subject to approval by shareholders of both companies and expected to be completed within three to six months. Once the purchase is completed, Fremont, Calif.-based Avanti will become a subsidiary of Synopsys.

"The acquisition of Avanti and its key technology offerings brings our customers proven, advanced physical design technology that is a perfect complement for our physical synthesis products," said de Geus. "It allows us to assemble and deliver for our customers what we firmly believe is the best IC design flow in the industry. As an aside, it fulfills the requests we've been hearing from our customers for years to make this acquisition a reality."

The deal comes after a turbulent year at Avanti, which last summer was ordered by a criminal court to pay $195 million in restitution to Cadence Design Systems Inc. in connection with the company's conviction on software theft charges. The Fremont company said it had paid all of the fines in October (see Oct. 4 story). In the criminal case, the Santa Clara County Superior Court in San Jose sentenced six employees--including the company's chairman, Gerald Hsu--in connection with the theft of EDA source code and material from rival Cadence.

San Jose-based Cadence has filed a civil suit against Avanti in connection with the allegation of source-code theft.

Consequentially, Synopsys said it has arranged to obtain $500 million in insurance to deal with the pending Cadence litigation as part of its plans to acquire Avanti. The premium for that policy was $335 million, said the Mountain View design automation supplier. If the ultimate liability and expenses of the litigation are less than $250 million, Synopsys will be entitled to a refund of that difference, the company said.

Under certain circumstances, if the proposed purchase is not completed, Avanti will be obligated to pay Synopsys a termination fee of $45 million. The transaction is structured as a tax-free merger of Avanti with a Synopsys subsidiary.