Sigh ...

That was my reaction to the news that NVIDIA (NASDAQ:NVDA) is buying PortalPlayer (NASDAQ:PLAY) for $13.50 per share in cash -- essentially no premium to Friday's closing price of $13.35, although, to be fair, PortalPlayer shares did really well last week, rising about 20%. Anyone think news of this deal leaked early?

PortalPlayer was hurt by Apple's (NASDAQ:AAPL) decision to forgo the PortalPlayer chip in the iPod nano, so this 20% gain was nice. Even so, I've been excited about the company's prospects since last summer, and this seems like a bum deal to me. The company's chip is still used in the current video iPod, and it has a great balance sheet plus new stuff in the pipeline. The most notable new product is a technology called Preface, which will serve as the brain for small secondary displays in the cover of laptop computers that run Microsoft's (NASDAQ:MSFT) next operating system, Vista. This feature, called Sideshow, has the potential to be a big hit.

So, besides Preface, what else is NVIDIA receiving for its $13.50-per-share offer?

Well, $7.68 per share -- more than half the purchase price -- is sitting on the balance sheet in cash and short-term investments. If you subtract the cash from the offer price you find that NVIDIA is buying PortalPlayer's technology and business for just $5.82 per share ($148 million total). Analysts are guessing that PortalPlayer will generate revenues of $130 million during fiscal 2007 -- so NVIDIA has purchased PortalPlayer for about 1.1 times 2007 sales. Not exactly a steep price, in my opinion.

For that low price, NVIDIA is getting not only the potential of Preface, but a deeper relationship with the most innovative company involved in producing mobile devices, Apple. As I wrote earlier, there is stiff competition among chip makers to win spots in Apple's iPods, and there has been a report that NVIDIA was chosen to provide chips for the next version of the video iPod. Nevertheless, PortalPlayer has worked with Apple for a long time and, as I mentioned above, its chip is used in the current video iPod. This relationship has to be worth something.

So why the low price? Perhaps there's a problem with PortalPlayer's technology, or perhaps Sideshow won't be the hit I expect it to be. If either is true, of course, then PortalPlayer likely made the right decision by selling itself. Until I know that for sure, I reserve the right to remain disappointed.

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Fool contributor Dan Bloom owns shares of PortalPlayer. He's also the owner of one PortalPlayer chip, which he keeps inside his video iPod. He invites your comments. The Fool has a disclosure policy.