Mentor rejects takeover bid
Mentor Graphics has rejected an offer to buy the company for about $1.5bn from larger competitor Cadence Design Systems.
Cadence said on Tuesday it would be willing to pay $16 in cash per share, a 30 per cent premium to Mentor’s Nasdaq closing price on Monday. Mentor’s shares jumped 21 per cent on the news, even as the company said its board unanimously rejected the offer, which was made on May 2 when the price represented a 59 per cent premium to Mentor’s then stock price.
“We reviewed Cadence’s proposal and analysed both the price proposed and the risks associated with obtaining antitrust approval,” Mentor chairman and CEO Wally Rhines said in a statement.
“We concluded that not only was the price insufficient to support a transaction, but that the risks of not gaining regulatory approval were sufficiently high that the ability of the parties to consummate the transaction would be in jeopardy,” he said.
If Cadence manages to seal a deal, Mentor would help it offer customers a broader portfolio of products at a time when semiconductor makers are looking to get more from suppliers without paying extra.
Both Cadence and its chief rival Synopsys are under increasing pricing pressure from their customers, and adding new products is one way to meet that demand, said DA Davidson & Co analyst Matt Petkun.
“There are too many dogs fighting over the same bowl of food,” Petkun said. “It’s not that there are pricing pressures on individual products. All of the products, whether or not they compete, draw from the same budgets of customers. That is the design budgets,” he added.
Petkun said some investors and analysts are speculating that Synopsys could make a counterbid for Mentor, but he declined to say if he thought such a bid might be forthcoming.
RBC Capital Markets analyst Mahesh Sanganeria said he would not be surprised if Synopsys made a bid as a merged Cadence and Mentor would create a serious competitive threat. A price war could push Mentor to about $18 per share, he said.
The analyst said he did not expect much of a push back from US antitrust regulators, saying Mentor’s key product is complementary to Cadence’s.
Although Mentor may want to remain independent, the company will likely face pressure from shareholders eager to cash in on the large premium offered by Cadence, Sanganeria said.
Cadence CEO Michael Fister claimed many of Mentor’s products do not compete with those of Cadence.
Mentor spokesman Ry Schwark declined to provide more details or say if the company had hired bankers to advise it on the matter.
Image: Mentor holds a commanding position in PCB design software as well as design-rule checking tools