Monday, February 14, 2011

WaferNEWS Watch: Advice for MENT and EDA: Fight and pray

Late last summer Carl Icahn raised his ownership stake in Mentor Graphics achingly close to the 15% threshold trigger of the company's newly enacted "poison pill" amendment, set down just two months earlier in what was viewed as a preemptory response to just such a shareholder maneuver.

And now we see why: Icahn now says MENT should put itself up for sale, and he's gathering forces for a potential proxy battle, ostensibly at least in part due to the company's sudden acceleration of its shareholders meeting date. "At the very least [Mentor Graphics] should be put up for sale and see what the shareholders want to do with it," he told CNBC. "The company is substantially undervalued versus its peers," added Donald Drapkin of Casablanca Capital, a 5.48% stakeholder that also is suggesting a new slate of board members. "Management's done nothing to promote shareholder value, they've just been just sitting on their hands [...] It's just a sleepy company run like a country club."

We asked EDA market watcher Gary Smith of Gary Smith EDA what he thought of the situation. Antitrust risks would probably keep EDA rivals Synopsys and Cadence out of the running for M&A, as the fragmented MENT assets would be "far less valuable than the whole," he told SST. A more logical fit would be with a mechanical vendor (e.g. Dassault or PTI), but a true inflection point of system design automation is still years away -- it "probably won't happen until the next decade so the acquisition wouldn't reap benefits for quite a while." From an engineer/user's perspective, acquisition by any other type of firm would mean a breakup of MENT, loss of leadership, perhaps "a slowdown in DFM R&D," and even a sectorwide EDA breakup "as we are seeing in the embedded software design market," Smith thinks.

His recommendations: "I think Mentor should remain independent so they can carry out their present market strategy without interference." And his advice for all the EDA companies: for MENT, "fight;" for SNPS, "pray"; and CDNS, "pray harder."

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