Under the deal, shareholders of the NASDAQ-listed ChipPAC will receive 0.87 ST Assembly American Depositary Shares for each common share they hold.

The transaction is valued approximately at over $1.6 billion based on the closing price of ST Assembly American Depositary Shares on Monday of $13.34.

The merger is expected to lead to the formation of the world's second biggest chip testing house.

Combined turnover for 2004 is expected to be more than one billion dollars, the two companies said in a joint statement.

ST Assembly is listed both in the Singapore Exchange and the New York-based Nasdaq. It has operations extending from Singapore to the United States, Britain, Japan, China and Taiwan.

Both firms test and package semiconductors for a wide array of usages.

ST Assembly shareholders will hold 54 per cent of the merged entity while ChipPAC shareholders will hold 46 per cent.

'The combined company will have a robust platform for growth as one of the world's leading independent suppliers of high-end packaging design, assembly and test solutions,' said Mr Tan Lay Koon, chief executive of the merged firm