A friend just sent me the news link that Carl Icahn is making a bid to control Mentor Graphics with a 6.9% equity position in MENT stock. Of course that news helped boost the share price of Mentor Graphics.
What Mr. Icahn is often able to do is take over a company, place his people on the Board of Directors, then start shedding jobs or merging the company.
If this attempt succeeds then it is likely we will be saying farewell to Wally Rhines and other executives at Mentor Graphics. To me that would be a shame because Wally is one of the few EDA executives that understands the software business and the semiconductor business equally well. Our industry wouldn’t quite be the same without Mr Rhines at the helm of Mentor Graphics.
Trying to taking a positive view – maybe this is a sign that those outside of the industry see the potential of the segment?
James,
With a “corporate raider” like Carl Icahn I can see no positive outcome for this kind of hostile take over bid. Let’s see how it plays out.
Actually, while it is bad for people in Mentor, ultimately, this could be a good thing for the entire EDA industry, which is significantly inbred. this could force consolidation, eliminate deadwood and jumpstart innovation and investment.
Maybe they read Cadence’s EDA360 Manifesto and want in on that $25B market
Wow. Carl Icahn bought a controlling interest in TWA when my dad was a captain for the airline.
I was a kid then, but the term “corporate raider” seems to fit with my memory of that time.
I never imagined he might follow me to the EDA industry. If he does, I hope the best for the many good folks over at Mentor.
Lou,
I live in Oregon and know that Mentor does trim employees every quarter, so I don’t really see deadwood there. A hostile takeover would demoralize the best and brightest minds and would certainly lead to the implosion and demise of Mentor as a company.
Harry,
The EDA360 Manifesto is basically a marketing position statement. Note that no other EDA or IP company has joined the EDA360 vision because it’s not really open to other companies.
Mentor is moving up the chain with their OS division and ESL tools like Catapult, etc.
Is there any specific reason to believe the Mr. Icahn and Wally would not want to work together? Quite curious though – MENT tends to operate in a niche space, and I am inclined to think that decision is more intentional than anything else. Wonder how Mr. Icahn would want to expand, if he wants to expand MENT that is. Selling off MENT would be real sad.
Arpan,
Yes, you just have to look at what Mr. Icahn has been doing over the past decades in terms of buying stock in a company to gain control of the Board of Directors and then making dramatic changes which includes shedding the CEO, other executives and business units.
This is pure hostility, nothing civil about it.
Hi Daniel,
Nice scoop! I agree and see nothing good coming from this. Mentor is the most undervalued company in EDA.
See you at EDA360Con (DAC)!
D.A.N.
Daniel,
The scoop came from my news-junkie friend who caught it first on CNBC then the WSJ.
The interesting historic point is that Mentor was the number one vendor in EDA in the early 80s when DMV (Daisy, Mentor, Valid) were dominant. In the 90’s they diverted attention into the Falcon framework and lost their #1 spot.
Cadence is still #2 at $868M in revenue while Mentor is a close #3 at $803M in revenue. Synopsys widens the gap in the #1 spot at $1.3B in revenue.
Daniel (#1 EDA blogger in Tualatin, Oregon)
Mentor’s assets leave the building every night (it’s people). It’s not clear Icahn wants to run a company like that.
Carl Icahn’s arrival does not necessarily mean a replay of TWA. Motorola and other companies have resisted his attempts to get himself or his people on their Board of Directors. He did make it onto the board of Yahoo! While his seat resolved a proxy battle, it can be argued that Yahoo is out of ideas strategically.
Without knowing who are his advisers on the Mentor deal (disclaimer: I am not one of them! (-;), it is not impossible that Icahn is convinced of synergies between Mentor Graphics and other properties (e.g., Lawson Software). For example, he may see MGC as a better platform to pursue a strategy like EDA360 than getting into Cadence, which originated that dialogue.
P.S.: Wait … since Icahn is involved with Yahoo! … EDA cloud computing, anyone?
Daniel, I was being sarcastic about the EDA360 thing. I need to find a sarcasm emoticon.
Sean, You’re exactly right about that. The developers in EDA are the golden assets and with a slasher like Icahn at the helm you would see these developers leave to find a better place to work at. Oregon would benefit from new start-ups.
Harry,
That’s OK, I get it now.
Gary,
Let’s all hope that Mentor can resist the attempts by Icahn to get seats on the board of directors.
Daniel
Gary,
Icahn would probably break the company up into pieces, selling IC Station and keeping Calibre, etc.
Icahn wins some, loses some as far as power goes. He bailed from the Board at Blockbuster early in the new year, didn’t seem to have much impact (no asset spinoffs that I recall, stores were shuttering anyways, etc.). He’s been stymied at Motorola (no board seat, Mobile will spin off on their schedule not his) and even Marvel Comics (got out with a nice sack of dough after Disney M&A) and I think that he had his hooks into either Ford or Chrysler until recently (could someone please correct me?). Icahn doesn’t always gut his holdings to increase value; sometimes his presence and the threat is enough to do it! And he has three major pharma/biotech holdings that could be on the road to merger, which is the direction that I’m guessing he’ll try to take MGC, etc.
Whilst Wally is good, the EDA threesome (or is it 3 and half now) are simply wasting away in their measly few billions they grab. Icahn might have thought Mentor is the right place to change all that and who knows that might work wonders for EDA and Mentor could come out shining brighter.
Hemanth,
I’ve been in over a dozen EDA acquisitions since 1986 and can assure you that a hostile takeover like Icahn is pursuing will simply drive away the best and brightest talent at Mentor, leaving the company a fraction of the size it was before both in revenue and talent.
I find it difficult to understand why anyone would think that Mr. Rhines and Mr Hinckley had done a good job with Mentor. The profitability, strategic position, and overall competitivness of the business have all stagnated or declined on their watch. They have collected cushy compensation packages while failing investors, employees, and customers. A new management team with more focus on running a healthy business and less focus on their own egos and nest feathering is long over due. The facts are the facts and the Mentor board is remiss for letting the situation persist as long as it has.
EDA Vet – Wally and Greg have been held in high regard for saving the firm in the 90’s. In the past decade, Mentor survived larger rivals like Synopsys and Cadence by focusing on being 1st or 2nd in some areas, avoiding others, and focus on niches that the larger two are absent (e.g., hardware-software co-verification, an area that was the focus of start-ups until other virtual platform approaches became viable with ESL). The entire EDA field is moribund with only a few small niche players like Jasper and Magillem (whose IPO in late 2009 was the most under-reported story in this field) making progress. Meanwhile, the start-ups on which EDA has relied upon for innovation have languished due to the lack of venture capital (credit crisis and past misfires). If I were looking for a major EDA firm to use as a vehicle to pull that industry out of its funk, I would take Mentor over Cadence (who are recovering from a management disaster) or Synopsys (who are too big, sitting on a CAD tool that has become a pillar of the electronics industry). Unlike Dan, I see Carl Icahn’s strategy with Mentor along the lines of his Marvel Comics initiative (i.e., light a fire under them!).
FYI – Great conversation about Carl Icahn’s bid to control Mentor over at Nenni’s blog:
http://danielnenni.com/2010/06/16/personal-message-to-carl-ichan/
One way to slow down Icahn by letting other share holders buy MENT at a 50% discount…
http://www.eetimes.com/showArticle.jhtml?articleID=225701448&cid=NL_eet
More reporting from the Oregonian newspaper here in Oregon, http://www.oregonlive.com/business/index.ssf/2010/07/mentor_graphics_rebounds_but_c.html
And the beat goes on, Icahn now owns 15% of MENT stock now. http://www.eetimes.com/electronics-news/4206444/Icahn-increases-stake-in-Mentor-to-15-
We’re just at the threshold of MENT shareholders being able to pick up new shares at 50% of the price to thwart Icahn from buying even more shares.
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