Intel (INTC  ) announced it would acquire Tower Semiconductor (TSEM  ) in a $5.4 billion tie-up as the storied chipmaker seeks to escalate production in light of the ongoing global chip shortage.

Intel will pay $53 per share of Tel-Aviv-based Tower at a marked $20 premium based on Monday's $33.13 closing price.

Shares of Tower surged 48% on the news and are up 32% for the week. Intel's own shares rallied 1.8% after the announcement but are down 2.82% for the week ahead of Friday's opening bell.

The deal gives Intel a foothold in the market for the analog chips, radio frequency technology, and industrial sensors which Tower specializes in. At the same time, the buy-out puts Intel in a prime position to capitalize on the global chip shortage, given the strained supply for these specialty components.

"Tower's specialty technology portfolio (and) geographic reach ... will help scale Intel's foundry services and advance our goal of becoming a major provider of foundry capacity globally," said Intel CEO Pat Gelsinger.

Gelsinger described Tower and Intel's technology as being complementary given the $100 billion global foundry market, which analysts expect to grow sharply in the coming years.

Tower, meanwhile, has been investing heavily to boost production at its facilities in Israel, Texas, and Japan with the specific aim to increase the output of 200 to 300-millimeter chips.

The company currently has a capacity for 2 million wafer starts per year and markets its products to fabless chip makers--who design but outsource production-- and integrated device manufacturers.

Intel also said Tower's existing production facilities were "geographically complementary" to its own. Intel already has a sizeable presence in Israel, employing some 14,000 across five sites and counting itself as one of the country's largest exporters.

Gelsinger took over as Intel's chief a year ago. During his short tenure, he has spearheaded an effort to restore the chipmaker's dominance, mainly by boosting capacity, with an eye for reducing America's dependence on Asian chip foundries.

Tandem to those efforts, Intel announced in January plans to invest up to $100 billion in an Ohio facility Gelsinger said could become "the largest semiconductor manufacturing location on the planet."

Meanwhile, in September, the company invested $20 billion in two new facilities at its Chandler, Arizona campus. Nevertheless, it will take years until these investments bring in additional capacity.

"First we have to catch up," said Gelsinger during the company's fourth-quarter earnings call last month. "We're behind on capacity, you know, we would lust after having some free capacity today."

CFRA Research analyst Angelo Zino told Reuters the deal would help Intel get the needed talent to develop its foundry business.

"However, by the time (Intel) gets this business going, supply constraints will no longer be an issue and both TSMC (TSM  ) and Samsung are both aggressively ramping up capacity in the next five years," he noted.

Both Tower and Intel expect the deal to close within the next 12 months, pending the approval of Tower's shareholders, among other regulatory matters which Gelsinger expects to go smoothly.

Once the ink is dried, Intel will incorporate Tower into Intel Foundry Services, a division the company founded only last year.