Source: Fairchild.

A month ago, Fairchild Semiconductor (NASDAQ:FCS) shares jumped 23% in a single day. Why? Because rumor had it that either ON Semiconductor (NASDAQ:ON) or Infineon Technologies (NASDAQOTH:IFNNY) would buy the company.

Well, the rumor has become reality. On Wednesday, ON and Fairchild posted a joint announcement of their impending merger.

In a somewhat convoluted financing maneuver, the $2.4 billion deal will be financed by cash from both Fairchild's and ON's balance sheets plus $2.4 billion of new debt. Since the deal is structured as a tender offer at $20 per Fairchild share, I suppose ON's $560 million of cash reserves and Fairchild's $240 million will be used to buy back the early waves of accepted offers, with the new debt filling the later rounds and replenishing the combined company's balance sheet to roughly $800 million of spare cash.

The two companies work in closely related markets, both extracting the lion's share of their revenues from chips that control and adjust power flows. ON's largest market is the automotive industry, representing 31% of the company's third-quarter sales. Fairchild's strength is in enterprise computing and telecom devices, so this deal will add a few new arrows to ON's quiver.

The current offer amounts to a quick one-time cash return of $2.4 billion to current Fairchild shareholders, saddling the new company with an equal amount of additional debt.

Source: ON Semiconductor.

Fairchild shares traded roughly 9% higher on the news, hovering just below the final buyout price. Meanwhile, ON shares dipped 9% lower. Doing the math on Fairchild's roughly $2 billion market cap and ON's $4 billion market value, this announcement destroyed more investor value than it created.

That changes if you zoom out to consider the entire deal process, from rumor to reality. All in all, Freescale is now trading roughly 35% higher while ON's shares have neither gained nor lost value. And throughout this one-month drama, Infineon shareholders got over their excitement pretty quickly. That stock has been trading sideways for several weeks, and barely moved on Wednesday's final buyout news.

This is a large deal for ON, which typically prefers far smaller plug-in buyouts. But it's also a snug strategic fit since both companies keep a tight focus on power controller processors. Management expects Fairchild to have a positive effect on ON's earnings and cash flows from day one, and should lead to $150 million in annual cost savings within 18 months as the customary synergies and layoffs take effect.

"Our plan is to bring together two companies with complementary product lines to offer customers the full spectrum of high, medium and low voltage products," said ON Semiconductor CEO Keith Jackson in a prepared statement.