Synaptics's shares jumped 19 percent in extended trading after the company also raised its revenue forecast for the fourth quarter ending June 30.
Reuters had reported last month that Apple had failed to make progress in talks to buy Renesas Electronics Corp's majority stake in the Japanese chipmaker Renesas SP Drivers Inc, paving the way for Synaptics to strike a deal.
Synaptics would integrate its touch technology with Renesas' display drivers into one chip, saving manufacturing costs, Feltl & Co analyst Jeffrey Schreiner said.
"There is no one else that can do touch display driver integration right now. There is no other competitor."
Synaptics, whose chips are used in Samsung Electronics Co Ltd's devices such as Galaxy S5 smartphones and Galaxy Note 3 phablets, was once itself a supplier to Apple.
Renesas Electronics holds a 55 percent stake in Renesas SP Drivers, while display maker Sharp Corp has a 25 percent stake and Taiwan's Powerchip holds the remaining.
Synaptics said on Tuesday that the deal was expected to immediately add to adjusted profit after its expected close in the fourth quarter.
Renesas SP Drivers posted revenue of about $650 million and cash flow of about $100 million for the year ended March.
Synaptics raised its fourth-quarter revenue forecast to $300-$310 million from $275-$295 million, citing better-than-expected sales of mobile and PC products.
The growing popularity of using fingerprints to unlock mobile phones and other devices is also expected to drive growth at Synaptics.
Synaptics's stock were at $78.45 in extended trading after closing down 1.3 percent at $66.52 on the Nasdaq on Tuesday. The stock has gained 28 percent so far this year.
(By Soham Chatterjee and Sampad Patnaik; Editing by Savio D'Souza)