What does Carl Icahn really want from Mentor?
Have you seen the increasing coverage about investor Carl Icahn’s growing interest in Mentor Graphics? Erik Siemers just wrote a story for the Portland Business Journal: “Mentor Graphics Waits to hear from Carl Icahn.” Even the Oregonian has recently noticed the issue, thanks to Mike Rogoway’s piece from several weeks ago: “Icahn takes a stake in Mentor Graphics”
It should be no surprise that one of my first questions for Mentor’s CEO Wally Rhines earlier this week at the Design Automation Conference (DAC) was about Icahn’s intentions. Since the setting for this conversation was an informal dinner with press and – believe it or not – a couple of new EDA analysts, I won’t quote Wally directly but will instead paraphrase his response.
Mentor has seen many suitors come and go, although their numbers have increased over the last 5 years or so. For example, the Cidadel financial group sought to control Mentor back in 2006. From most accounts, their interest was purely for a short term gain. However, after discussions with Wally and the board, they found that the company strategy and structure favored long term growth. Further, there seemed to be little to gain from cutting cost or improving operations, since both were already at levels similar to the other big EDA companies. Indeed, those of us who follow Mentor know about the constant cost cutting that occurs, e.g., layoffs, even in good years.
This long-term strategy is also evident from a technology standpoint. Mentor’s recent acquisitions – 8 during the downturn and 12 over the last 2 years – have been in the areas of embedded software, open source Linux, board level manufacturing, packaging, and – of course – chip design. In other words, Mentor has continued to invest, even in the downturn. This strategy suggests a more mature and perhaps even boarder approach than Cadence’s recent EDA 360 pronouncements. Time will tell.
Will Icahn gain controlling interest in Mentor Graphics? Will he want to, once he gains a better understanding of the EDA business in general and Mentor’s company structure in specific?
In the past, many of us have seen suitors for both Mentor Graphics and Cadence Design Systems come and go. Those interested parties varied from financial/investment firms (such as the Cadence – Blackstone-KKR buyout), supply chain/ERP manufacturing companies, PLM design vendors (see my comments about Dassault Systems) and even EDA-to-EDA (Cadence’s attempted acquisition of Mentor in the summer of 2008).
Icahn may be the latest in a long series of suitors or he may be the final game changer. Regardless, it will make for an interesting summer of coverage.