Novafora Inc. , a video-processing chip startup helmed by the founders of what used to be Terayon Communication Systems, has broken cover to reveal it has offered $255.6 million in cash to acquire Transmeta Corp.

Under terms of the deal, Transmeta shareholders will get between $18.70 and $19 for each outstanding share of Transmeta's common stock. The deal is expected to close sometime in the first quarter of 2009. (See Novafora Nabs Transmeta.)

Transmeta, once considered a possible Intel Corp. (Nasdaq: INTC) rival before refocusing on the licensing of its intellectual property, announced in September that it had hired Piper Jaffray & Co. to help it seek a potential buyer. On Monday, it announced third-quarter revenues of $25.3 million, versus $366,000 in the previous quarter. It ended the quarter with cash, cash equivalents, and short-term investments of $255.2 million.

So what does Novafora, a company born in 2004, want with Transmeta, a microprocessing and semiconductor firm founded about 13 years ago?

According to Novafora CEO Zaki Rakib (the former CEO of Terayon, which is now part of Motorola), his company wants to incorporate Transmeta's LongRun2 power management technologies into a new line of video-processing chipsets that are already under development.

Essentially, Novafora, which is also picking up Transmeta's massive patent portfolio and about 30 employees, wants to ensure its video-processing engines consume power at relatively low levels.

Novafora's involvement in the takeover offer is one of the few times the chipset firm has emerged into public view.

Formerly known as Sipharos, Novafora has kept out of the public eye while it plugs away in research-and-development mode. Last year, word got around that the Rakib brothers, Zaki and Shlomo, were steering the ship as CEO and CTO, respectively, and that the company had landed a first round of funding. (See Terayon Founders Helm Stealthy Startup .)

Novafora plans to shed more light on its products in the first half of 2009, but the company believes its dedicated video-processing technology will play a key role in enabling the delivery of real-time video to all sorts of fixed and mobile devices over wired and wireless networks.

"We are building a better mousetrap for video processing," Zaki Rakib boasts to Light Reading. "The highest quality video at any given time on any given device -- that's the goal."

The company wants to see its video-processing units (VPUs) grace a wide range of end devices, including mobile handsets and notebooks and laptops. Novafora is also aiming high in the cable arena, hoping to see its silicon eventually find a home inside everything from headend video encoders and decoders, network nodes, and even digital set-top boxes.

"We will not be appealing to all of those markets from day one, but our next-generation chip will [embed Transmeta's technology]… and produce low power," Rakib says.

Novafora currently has about 60 employees, most of them engineers. The Rakib brothers and two venture capital partners -- Gemini Israel Funds and Vertex Venture Capital -- have invested about $25 million in Novafora so far. Zaki Rakib says Novafora could eventually seek additional funding on an equity or non-equity basis as required, but would not say how much cash the company might be looking to raise or when it might need to raise it. He notes that cash in the Transmeta coffers will be used to pay the Transmeta shareholders and help to execute Novafora's acquisition.

Although the market is littered with failed silicon companies, Rakib says most of them didn't succeed because they bit off more than they can chew.

"I can promise you that this is something that we're not going to do at Novafora," he says. "Novafora doesn't need to be a chip that solves all the problems of the world."

But Novafora's still pretty ambitious. "What Nvidia Corp. (Nasdaq: NVDA) did for graphics, I want [Novafora] to become for video," Rakib asserts.

The Rakib brothers know a few things about running a semiconductor shop. In the Terayon days, they tried to spin off a Docsis modem and cable modem termination system (CMTS) silicon company called Imedia Semiconductor. Terayon scrapped the idea and eventually sold off its silicon assets after the company ran into trouble signing OEM (original equipment manufacturer) deals with Docsis gear makers outside the Terayon family.

— Jeff Baumgartner, Site Editor, Cable Digital News