Stay tuned …
As noted yesterday, Altium is packing up its HQ, R&D and marketing teams and moving them lock, stock and barrel to Shanghai. After hearing some of the usual chortling and catcalls, then finally speaking with Altium (late) last night, the rationale behind the move seems sound, if a bit abrupt. I’ll have more on that later today when I post the interview.
Also on the far West side of the Pacific (it doesn’t pay to sleep in this job) Fujitsu will integrate its signal integrity tool into Zuken’s CAD suite. (Not certain yet what this means for Zuken’s own SI tools, which at the moment actually have a larger market share than Fujitsu’s.) The move would put the combined suite closer to No. 2 Ansoft in the SI arena. Mentor is still well ahead of the pack, but it’s a start.
But there is a distinctly disengenuous flavor to Mentor’s reasoning. In a statement, the company insists that the company is worth more than Icahn is valuing it. Specifically, it claims, “Our share price has grown by more than 70% over the last year, for a two year aggregate growth of approximately 200%.”
True, that, but what the company fails to acknowledge is that Icahn’s accumulation of Mentor stock is likely the main driver behind the upswing. One year ago, Mentor’s stock was trading at under $8 a share. It’s now almost twice that. During that time, Icahn boosted his holdings from under 5% to almost 15% of the company. The combination of his large purchases and the inevitable ride on his coattails some speculative investors are taking has no doubt strongly influenced that jump in value. Despite a $125 million jump in revenue, Mentor has lost an cumulative $14.2 million over its past three fiscal years: to suggest investors are simply thrilled by its performance is a difficult assertion to prove.
The company also speaks of — but doesn’t elaborate on — regulatory risks that come with Icahn’s proposed buyout. It’s not clear why a sale to its largest shareholder, one who is tellingly not a competitor, would run afoul of SEC or other rules.
The relationship between Mentor and Icahn has clearly soured. That was predictable: Few companies welcome Icahn’s type of shareholder “interest.” What’s less clear is what happens next. Will Icahn fold his flag and start selling? Or will he redouble his efforts to pressure the company into a sale?
And if the market is right, Carl Icahn will not be the next owner of Mentor.
Mentor’s board isn’t leaving anything to chance, announcing via an SEC filing today that it would strongly urge shareholders to support its current directors, and reject dissident shareholder Carl Icahn’s alternate slate.
“The Icahn Entities are attempting to replace your directors, who have supported Mentor’s successful strategy, with nominees who have, in our opinion, preconceived notions of what is right for you and who do not have the collective knowledge, skill and experience of your current board of directors.”
But the voice that counts most is that of the shareholders themselves, and market, for now, is not pushing the stock up. Icahn’s tender offer of $17 per share remains on the table, yet Mentor is trading at just under $15 a share. That suggests the market doesn’t believe Icahn’s proposal will be accepted, or that another bidder will come forward.
That’s probably a good read of the tea leaves: Icahn and his ally, Casablanca Capital, together control just over 20% of the outstanding shares. But no other major holder of Mentor stock has publicly called for changes at the EDA company, and for now it looks Wally Rhines and the rest of the management team will hang on.
But it’s clear from the seven sentence letter that Icahn has no desire to own the PCB/EDA software company. As he states
There will be no financing conditions. Furthermore, we will not insist upon providing for a break-up fee in the transaction so as not to provide a roadblock to others who may want to consider bidding higher than our bid.
In other words, “I don’t want to own you. I just want to maximize the cash I can get for you.”
There are three obvious bidders for Mentor: Synposys and Cadence on the semi design business side, and Cadence and Zuken in the PCB space. That said, Synposys has shown no interest in the PCB side, and Cadence has a relatively new CEO who owes his job in part to the bungled attempt of his predecessor to buy Mentor. I can’t see Cadence making much of a play at this time. Zuken has plenty of cash and hasn’t been able to crack open the North American market (its share as of March 2010 was about 5%); this is a prime opportunity.
Given Icahn’s track record, the odds are growing long that the Mentor of 2012 will look much like the Mentor of today.
It’s one thing when one high-profile corporate raider wants a piece of you. But three?
That’s the queasy situation Mentor finds itself in today. The company’s board, which fended off Cadence a couple years ago, is now fighting for its life, having incurred the ire of two of its major shareholder groups by switching the date of its annual meeting, thus making it difficult for the dissidents to propose their own slates of directors. And they aren’t the only ones who could make life difficult for the EDA software company.
It’s never good to be in the middle of a battle with shareholders whose funding and access to capital is several times greater than yours. It’s especially not good when you have lost a net $65 million over three years and are seen as a bountiful treasure chest that just needs unlocking.
For 18 years Wally Rhines has been a steady hand at the helm of Mentor. Sadly, it’s looking more and more likely he won’t make it to 19.
About three years ago, Cadence made a play for EDA competitor Mentor Graphics, an offer the latter never seriously considered. That move, coupled with sharply falling revenues, cost then Cadence CEO Mike Fister his job.
On Friday, the San Jose Mercury-Times reporter Steve Johnson asked current Cadence chief executive Lip-Bu Tan about that merger attempt. While Tan doesn’t specifically address that deal, his words are telling: “In general, industry consolidation is always good.”
It’s a bit frightening to consider a PCB CAD world with one major player taking up the lion’s share of the North America and European markets. (Zuken more than holds its own in its native Japan.) As we learned when AT&T dominated the phone equipment and services market, monopolies (or near monopolies) are the enemy of innovation. Let’s hope it never comes to that.
What is noted corporate raider Carl Icahn up to?
With just under 15% of Mentor in his portfolio, Icahn now has turned his attention to an ERP software company called Lawson, of which he has accumulated nearly 11% of its outstanding shares. Does he plan to put the two together somehow?
This Barron’s report suggests at least one market watcher believes the moves aren’t isolated. “He bought at the same time, they’re both software companies and they’re somewhat laggards,” Lon Juricic of StreetInsider.com is quoted as saying. “He’s always known for his activist positions with companies … .”
Well, that seals it, doesn’t it!
Everyone and their dog has an ERP company, of course, and while Oracle, SAP, Infor and Microsoft are the domain of the largest enterprises, the door remains open for smaller, niche companies with tools designed for particular markets. But I don’t see that happening here. Manufacturing is just a piece of Lawson’s business; it’s not the whole focus. And almost every company in electronics manufacturing already has some sort of ERP system in place. It’s an expensive proposition to switch.
And yet, there are some enticing facets to consider.
Lawson, through an acquisition last year, does have cloud computing capability that the industry is trending toward. There is benefit to that capability — see Altium’s recent purchase of Morfik, for example. Also, more EDA vendors are building in purchasing and inventory availability tools to their traditional place and route capabilities. Mentor’s acquisition of Valor aided its ability to track parts from design to placement. Intertwined with a solid ERP system, Mentor could leverage its traditional CAD tools even further.
But there’s the rub, right? At this point, most decent EDA tools talk in some shape or form to the ERP systems. Why reinvent the wheel — and at great risk given this is a (pricey) solution in search of a problem?
I see these moves as singular in nature and unrelated. But it’s still fun to speculate on.
George Soros is taking a stake in Mentor. Carl Icahn is buying up Mentor and Cadence.
What’s with the notorious billionaires wanting a piece of our little industry? And who’s next? Gordon Gekko?
Mentor will announce winners of its Technology Leadership Awards this afternoon. While the name of the award is misleading — non-Mentor CAD users need not apply — there always are some great designs. (Side note: Our own Pete Waddell is a judge.)
We will post the winners as they are announced; check back around 2 pm Eastern.