Cadence withdraws $1.6B Mentor bid

By Ann Steffora Mutschler, Senior Editor -- 8/15/2008

Following its aggressive $1.6 billion bid in June for fellow semiconductor design tool provider Mentor Graphics Corp, EDA giant Cadence Design Systems Inc today withdrew its offer, citing rejection from Mentor’s management and board of directors. At the same time, Cadence’s board of directors authorized a $500 million increase to the company's stock repurchase program.

The $1.6 billion, all-cash proposal represented a 30% premium over the $12.33 closing price of Mentor’s stock on June 16, the last trading day prior to public disclosure of Cadence’s proposal; a 59% premium over the $10.04 closing price of its stock on May 2, which is when Cadence said it first presented the terms of the proposal to Mentor; and a 46% premium over Mentor Graphics' average closing price for the past 30 trading days, Cadence said in June.

At that time, Cadence President and CEO Michael J. Fister said, “A combined Cadence-Mentor will offer customers a broader and more fully integrated product and technology portfolio in a timeframe that better enables them to address urgent and complex challenges associated with their next-generation product development.”

Today, Cadence said in a statement, “Our goal in pursuing a combination of Cadence and Mentor Graphics was to create a company that would offer customers a broader and more fully integrated product and technology portfolio in a timeframe that would better enable them to address urgent and complex challenges associated with their next-generation product development. It is unfortunate for Mentor Graphics shareholders, however, that despite our best efforts, Mentor Graphics’ board and management were unwilling to engage in substantive discussions on what we believe would have been a compelling opportunity to create significant value for both companies’ shareholders and customers.

“Cadence is a disciplined buyer and will only pursue transactions that make sound financial sense for our shareholders. Mentor Graphics’ failure to engage in substantive discussions on our all-cash premium proposal prevented us from confirming for our financing sources the significant synergies associated with this transaction. That, along with our revised outlook and the present economic climate, led us to conclude that financing terms for the transaction are no longer attractive for our shareholders. We remain focused on executing our strategy of delivering holistic solutions that address our customers’ key challenges, while ensuring that Cadence operates in the most cost-efficient manner,” the statement continued.

In response, Mentor said this withdrawal is inconsistent with both Cadence's recent public statements and recent communications between the companies. "Mentor Graphics was aware that, as described in the Cadence press release, Cadence was facing challenges in obtaining financing for the transaction. Additionally, today the Federal Trade Commission made a 'second request' indicating that regulatory review of the previously proposed transaction would have been protracted," Mentor said in a statement.

In terms of Cadence’s share repurchase program, the company said its total share repurchase authorization is now approximately $912 million.

Finally, Cadence said it will repurchase the shares from time to time for cash in open market transactions or in privately negotiated transactions in accordance with applicable federal securities laws, and that the timing and amount of the repurchases will be determined by the company’s management based on their evaluation of market conditions, share price, and other factors.

For commentary on the original bid, see, "Cadence stalks Mentor: a possible explanation. (And no, it's not strategic.)

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