By Dana Mattioli And Gillian Tan 

NXP Semiconductors NV agreed on Sunday to acquire Freescale Semiconductor Ltd. in a combination that would create a chip giant with combined revenue of more than $10 billion.

Under the terms of the agreement, Freescale shareholders will receive $6.25 in cash and 0.3521 of an NXP ordinary share for each Freescale common share held. The purchase price implies a total equity value for Freescale of approximately $11.8 billion, the companies said.

Richard Clemmer, NXP's chief executive, will continue to be the President and Chief Executive Officer of the merged company.

The agreement between the companies is the latest sign that the mergers-and-acquisitions market, which came roaring back to life in 2014, could be in for another strong year.

Freescale traces its lineage to 1948, when Motorola Inc. created a division in Arizona that would become one of the world's first semiconductor businesses. The company has made many kinds of chips over the years, but has recently been best known for products called microcontrollers, and applications for cars, networking and industrial equipment.

Freescale, which is based in Austin, Texas, was spun off from Motorola in 2004 and agreed two years later to be purchased in a $17.6 billion leveraged buyout by private-equity firms Blackstone Group LP, Carlyle Group LP, TPG and Permira. The deal was one of a crop of blockbuster LBOs around that time.

The company went public again in 2011 in a deal that left Blackstone as its largest stockholder. But the chip maker remained saddled with a heavy debt load, which totaled about $5.6 billion as of Dec. 31.

Freescale reported net income of $251 million on net sales of $4.6 billion last year, both improvements from 2013.

NXP, based in the Netherlands, was previously the semiconductor arm of the Dutch electronics giant Philips NV. It became independent as part of a 2006 deal in which ar private-equity group including KKR & Co., Bain Capital LLC and Silver Lake bought 80% of the business. The group agreed to pay $4.3 billion and assume some $5 billion in debt. The company went public in 2010; the private-equity firms have since sold their stakes.

NXP has a broad array of products and a large business in chips used in cars. It as also been heavily involved with a short-range wireless technology called near-field communications, which has been incorporated into some smartphones for purposes such as mobile payments, a growing field.

NXP's revenue rose 17% to $5.65 billion in 2014; its net income rose 55% to $539 million.

Write to Dana Mattioli at dana.mattioli@wsj.com and Gillian Tan at gillian.tan@wsj.com

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