False Statement Plagues Mentor Plea

Mentor today again exhorted shareholders to vote for its current slate of directors and reject activist investor Carl Icahn’s alternate nominees.

In the open letter, Mentor pointed to its improved revenues over the past few quarters, calling it proof that its strategy is working. That alone provides ample evidence the EDA company is headed in the right direction, although it remains to be seen whether Mentor boost sales profitably, which has been Icahn’s point all along.

In the letter, Mentor argues against what it calls Icahn’s desire for a “public sale.” “The linchpin of Icahn’s platform for his nominees continues to be a risky public sale process for [Mentor]. This public sale process might provide Icahn with liquidity, but has the potential for significant value destruction and could derail the business and financial momentum that Mentor Graphics currently enjoys,”  the letter states.

Does Icahn want to be in the software development business? Of course not. And this is a polite way of saying so.

But more troubling is the company’s continued obsession with any alleged regulatory issues of a potential sale.

“It is clear that Icahn is simply continuing to ignore the regulatory obstacles and commercial risks to any transaction with Synopsys or Cadence, despite knowing that the analysis we recently performed shows that there are serious regulatory risks to any transaction with these two companies. He also continues to ignore the destruction of value through loss of customers and employees from any failed process to sell the company.”

Again, Mentor positions the only two logical buyers as Synopsys or Cadence, when in fact, they are perhaps the least logical buyers, for a multitude of reasons.

This line of argument is, at best, disingenuous*. As we’ve noted before, Cadence is heavily in debt and already made one failed play at Mentor, a move that helped cost then-CEO Mike Fister his job. Synopsys has shown little taste for PCB tools over the years and has made no indications it is at all interested now.

So who else would be potential buyers? In no particular order:

  1. National Instruments is coming off a record quarter, and has one of the best balance sheets in EDA today, with $385 million in cash and no debt. It is slightly larger than Mentor overall, but it would certainly be large enough to absorb the latter’s PCB unit.
  2.  Mechanical and PLM software developer PTC also is slightly larger than Mentor. It acquired Ohio Design Automation in 2004, giving it a small inroad to EDA. With its Winchill and Pro-E suites, it has a dominant place in MCAD. Given that some ECAD vendors are trying to extend into the MCAD space, it stands to reason PTC might see the value in going the other way.
  3. Siemens clearly has both the financial girth and potentially the general interest. The conglomerate has a huge stake in PLM with Tecnomatix and Unicam, and is attacking factory line software as well. By owning the PCB side of the equation, Siemens could hypothetically offer manufacturers a single solution encompassing ECAD, PLM and traceability, without the need for machine translators at pick-and-place and test, for example. (This would not happen overnight, if ever, of course.) As for its financials, well, it was the world’s third largest electronics company in 2010, after H-P and Samsung, according to Forbes, with $103 billion in sales.

I’m looking at this only through the PCB lens, of course. But the universe of potential companies that could both afford and possibly desire Mentor in some shape or form is clearly much larger than two. While Rhines deserves the opportunity to continue to run Mentor without Icahn’s interference, it also would behoove Mentor to stop treating its shareholders as fools, as doing so undermines its rational — and strong — argument for the status quo.

*Disingenuous: not straightforward or candid; giving a false appearance of frankness; “an ambitious, disingenuous, philistine, and hypocritical operator, who…exemplified…the most disagreeable traits of his time”- David Cannadine; “a disingenuous excuse”  (Source: Dictionary.com)