August 18, 2008
Blood Sport – Securities & Security
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16 August 2008
In an act of astonishing cunning - or astonishing vengeance - yesterday Cadence announced at 12:39 PM ET that they're withdrawing their offer to purchase Mentor Graphics. The press release cited Mentor's unwillingness to cooperate or communicate about the offer. Clearly caught unawares, Mentor countered with their own press release two hours later saying the Cadence announcement was “inconsistent” with what Mentor had heard to date, and that Mentor was working to protect shareholder value.
In the 2 short hours following the Cadence announcement, MENT fell an astounding 25% while CDNS went up 10%. (Silly, shortsighted CDNS shareholders never did embrace the CDNS-uber-MENT deal.) By closing bell, MENT was down over 26% to $10.33 a share, and CDNS was up 7% on the day, closing at $7.64.
So, let's do some hypothetical math here. As of their July 23rd earnings call with The Street, CDNS management announced that they had purchased 4.7% of MENT, or 4.3 million shares. Let's say CDNS paid $16 a share, per their public offer in June, for that 4.7% stake in MENT. By closing bell yesterday, CDNS potentially lost $16 minus $10.33 times 4.3 million, or $24+ million dollars. That's almost 5x over their 2Q'08 net income. Wow.
Of course, they gained on the uptick in CDNS. Oh happy day.
For heaven's sakes, you're probably saying, this is just paper money and these calculations have no basis in reality. Cadence probably bought many of those MENT shares prior to their public offer, and hence paid less than $16/share. Besides, you're probably saying, this is just business. Nobody's actually 'won' or 'lost' anything here. And it's neither an act of 'cunning' nor 'vengeance' to give up and walk away from a deal that just ain't happening.
You know, quite honestly, my instincts say otherwise. Next Wednesday, less than 72 hours after this newsletter is posted, Wally Rhines will stand up in front of The Street to discuss his company's most recent quarterly earnings. What do you think? You think that call's going to go well? You think it's going to go as smoothly, say, as Mike Fister's meeting with The Street on July 23rd? You think Rhines' upcoming date with destiny had any particular influence on the day and time chosen for yesterday's announcement from Cadence? No? Are you daft?
This whole stupid mess mystifies me. Sorry, Adolph - I know you've assured me that it's just “business as usual.” Sorry, Lou - I know you've assured us all that there “is nothing personal” about the CDNS-uber-MENT attempt, but I'm unconvinced. I remain mystified because I know some of the people at Cadence.
The last time I spoke at length with
Mike Fister was at a bowling alley in Silicon Valley where he was hosting Stars and Strikes and raising mega-funds for local charities. The last time I spoke at length with
Alberto Sangiovanni-Vincentelli, Ellen Sentovich, and Nancy Szymanski , we were chatting over cappuccinos in Alberto's gracious home in the Berkeley hills talking about technology and education. The last time I spoke at length with
Andreas Kuhlmann, he was in his office overlooking the Golden Gate Bridge, waxing poetic about the intellectual stimulation and opportunities for innovation at the Cadence Berkeley Labs. I've attended team dinners with Bill Porter at the local high school where his son and my son ran cross-country together. Ted Vucurevich always has a grin as wide as the world when he's rocking away with his band. Roger Siboni gave the toast at my sister's wedding.
I want to believe these are real people. They certainly seem decent enough in person.
But do they all really think this is normal corporate behavior? That it's a good day's work for a good day's pay to crush the life out of a fellow company in the industry? To humiliate a company by publicly revealing their rejecting a private acquisition offer? To destroy the stock valuation of a company by issuing a devastating press release just prior to the close of trading for the week, just in time for everybody who holds MENT to have a long weekend to think it over and put in their sell orders in advance of Monday's opening bell? To guarantee that Wally Rhines will have the roughest moment of his life next Wednesday at 8 AM ET?
I just can't understand it. Do these people that I've met over the years run their private lives this way, taking every opportunity to annihilate the spirit and optimism out of the folks around them?
Oh, that's right. Again, I forgot. There's “nothing personal” here. It's just “business as usual.”
The business of EDA … a blood sport we can all be proud of.
Predicating the Future …
* Why TSMC should buy Cadence
It's easy to site numerous motives that TSMC might have for buying Cadence.
* Death of EDA as an Independent Industry
The glory days of EDA as an independent industry will be over quite soon.
Blood Sport - Security
You've got data and you want to secure it, so people without proper authorization can't get to it. That data could be a DVD, or an Internet broadcast, or financial data, or medical records, or a digital design. In order to secure that data, you need both a scheme for encrypting the data and a strategy for creating and protecting a key that allows only the authorized to decrypt that data. These days, the challenge is not so much in the encryption as in distributing and retaining keys in a secure manner.
Many believe keys shouldn't be executed in software, because software is always ultimately hackable. However, you also can't guarantee the integrity of keys executed in hardware if the hardware platform is vulnerable. So, what to do? Working together,
Certicom say they've come up with a strategy that guarantees the integrity of keys executed in hardware, something that I talked to them about recently by phone.
Ours was a confusing conversation, because the topic's as convoluted as EDA. Just remember -it's not about the data or the encryption of the data. It's about the keys that decrypt the data that's been encrypted, using either industry-standard or proprietary security schemes.
Craig Rawlings is director of marketing at Kilopass and Brian Neill is product manager at Certicom.
Peggy Aycinena - So digital security is a problem.
Craig Rawlings - Digital security about protecting your identify, your money, or whatever you hold dear. You can say security is crap. You can say, I don't like it because it makes my life less interesting. A lot of people don't have to like experience of dealing with security, but money, credit card information - that's the stuff that's real world. People do care about that.
Brian Neill - You absolutely have to make sure an electronic product is robust from a security point of view, both when the product is in the field and when it's being manufactured. In order for somebody like Sony to produce a Blue-ray DVD, for instance, they have to have assurance from the manufacturer that the DVD won't show up on the Internet. Content protection standards make sure that the makers of the devices and consumer electronics can't make copies of them.
Craig Rawlings - Security's important to a ton of people. Everybody from the people who make TV's to the people who make chips. Look at the
40 million credit cards stolen from Barnes and Noble, TJ Maxx, etc., folks who didn't have sufficient wireless security for data going out into the air. What we've seen [as a result of this type of thing] is a growing interest in standards being formed, standards for putting security into the physical layer in the silicon.
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-- Peggy Aycinena, EDACafe.com Contributing Editor.