Dutch semiconductor equipment maker ASM Lithography Holding will acquire rival Silicon Valley Group in a stock swap worth $1.6bn (£1bn). The companies said the deal, which would create the largest provider of lithography equipment to the semiconductor industry in the world, would immediately contribute to ASML's bottom line. The lithography equipment business is expected to hit $7.7bn by 2002, and is growing at a compounded annual growth rate of 30 percent, according to research firm Dataquest. SVG will become a wholly owned subsidiary of ASML. The deal calls for SVG stockholders to receive 1.286 ordinary shares of ASML for each share of SVG common stock, a 58 percent premium. Following the merger, SVG shareholders will own 10 percent of ASML. SVGI closed up 3.44 at 26.31 Friday, while ASML closed down 1.5 at 32.31. The deal is expected to close in the first half of 2001. The two companies together will control about 43 percent of the market for scanners and steppers, machines which map out the circuitry for computer chips, with Nikon falling to second place. In a conference call, ASML CEO Doug Dunn said the boost to market share was secondary to the main rationale for the deal -- to combine the technological strengths of the two as the industry pushes for continually more advanced tools. The lithography industry is undergoing a steady shift to finer resolution as well as to larger 300 millimetre silicon wafers. The deal combines the high volume production capacities of ASML with the SVG's strengths in optical technology and early introduction of machines. Dunn told the conference call the two companies would continue producing their current 193 nanometre wavelength models, but would combine forces as the technology sharpened to 157 nanometres and beyond. The deal will also add SVG's photoresist track and thermal product lines to ASML's offerings, as well as its key customer, Intel. Sixty-eight percent of SVG's sales come from the US, and most of those sales come from Intel. Dunn said Intel were "in general terms supportive" of the move. "The most important part is that SVG is one of the suppliers of Intel. This should make it easier for ASML to get in...Intel has two key suppliers -- SVG and Nikon. ASML has tried to get in but it hasn't been easy as Intel tend to copy their factories," said Eric de Graaf, analyst at ING Barings. Reuters contributed to this story. See Chips Central for daily hardware news, including interactive roadmaps for AMD, Intel and Transmeta. See techTrader for more technology investment news, plus quotes and research. To have your say online click on the TalkBack button and go to the ZDNet News forum. Let the editors know what you think in the Mailroom. And read what others have said. See Inter@ctive Investor for US tech investor news.