By Paul Sandle
LONDON (Reuters) - Britain's CSR <CSR.L> has rebuffed an approach from Microchip Technology <MCHP.O>, saying its U.S. rival would have to pay more if it wants to bolster its role in the "Internet of Things" with the chipmaker's radio technology.
"The price proposed by Microchip has been rejected and the board is considering its options for the company," CSR said in a short statement on Thursday.
Shares in CSR, which had fallen 9 percent in the year to date, shot up 37 percent at 785.5 pence by 1138 GMT (7:38 EDT), valuing the company at 1.3 billion pounds ($2.2 billion).
CSR, short for Cambridge Silicon Radio, specializes in connectivity, with its chips used in products such as speaker docks and Apple-owned Beats headphones.
It has recently developed smarter Bluetooth technology that connects multiple devices in the home, enabling people to control their lighting and heating using a smartphone, an example of the so-called "Internet of Things".
Its role in the developing sector makes it an attractive target for larger chipmakers who are seeing less opportunities for growth in smartphones.
Microchip, which makes memory and analog chips, agreed to buy Taiwanese wireless product maker ISSC Technologies Corp for $328.5 million in May. Buying CSR could cost it nearly 10 times as much, analysts said.
Alex Jarvis at Peel Hunt, the top-rated analyst covering the stock, said CSR was one of her key picks as a takeover target.
"Firstly, it's about large vendors finding profit centers outside handsets, and secondly it's about part of the convergence toward Internet of Things, focusing on big areas like home entertainment and automation, and that trend happening in automotive as well," she said.
CSR's Chief Executive Joep van Beurden has been shifting the company to focus on more profitable areas such as music, audio and automotive, with less reliance on products like digital cameras.
He sold CSR's mobile phone technology business, where it was losing ground to rivals like Qualcomm <QCOM.O>, to Samsung Electronics Co <005930.KS> two years ago for $310 million.
Jarvis said the turnaround had put CSR in a relatively strong position, and its favorable UK tax rate also made it an attractive target for U.S. companies.
CSR issued the statement after a report on the Financial Times website said it was talking to a potential suitor about a deal that could value it at about $3 billion.
Jarvis said a price of around 11 pounds a share, valuing the company at about $3 billion, would be "not out of kilter".
Under British takeover rules, Microchip has until Sept. 25 to either announce a firm offer for CSR or walk away.
J.P. Morgan Cazenove is advising CSR.
($1 = 0.6030 British Pounds)
(Editing by Neil Maidment and Tom Pfeiffer)