The Summer of Our Discontent: War Games in EDA

Part 1 – Bombs Away

If you’ve been comatose for the past 5 weeks, wake up and smell the bombshell. Cadence has announced a thirst for Mentor Graphics, and much that defines the EDA Nation now hangs in the balance:

… thousands of jobs, millions of shares, billions of dollars, oodles of ego, and a corner office or two – not to mention a plethora of sales channels, entire product lines, DAC, EDAC, a host of publications, the reputation of various industry pundits, and a bubbling lobster pot full of flaming-red snapping crustaceans.

Oh yeah, and if you’re one of those guys who’s bio includes “… twenty years’ experience in EDA” watch your back, because there ain’t nobody watching it for you. You may be on the verge of being phased out as we move to the next phase of life in EDA.

If Cadence satisfies its thirst, Mentor will cease to exist and Mike Fister will be hailed as a modern day Caesar for conquering the Barbarians to the north. If Cadence fails, however, Fister will be out faster than you can say Hector Ruiz, Wally Rhines will wear the laurel wreath, will shed the public shame of being Mr. Nice Guy, and merriment once again will rule the Shire.

Either way, if Cadence is doing this because they’re pissed off at the small minds and tiny visions endemic to the Provincial Village of EDA – even if they lose the war, they’ll have won the battle. Because by checkmating the industry with this aggressive move, they’re prodding the Village into getting on with things, whether the Villagers like it or not.


Part 2 – War Stories

6/17/08 * CDNS drops a bombshell, goes hostile on MENT, and names Deutsche Bank Securities and Davis Polk & Wardwell as financial and legal advisors on the deal.

6/17/08 * MENT says no way, (San) Jose.

6/17/08 * Richard Goering immediately posts a lengthy analysis of the news that implies both inside access to CDNS and advanced warning of the CDNS-uber-MENT attempt.

6/17/08 * Peggy Aycinena says CDNS channels Don Corleone by making MENT an offer they can’t refuse.

6/17/08 * John Blyler notes vivid industry opposition to the CDNS-MENT deal.

6/17/08 * Chris Edwards says the deal’s tantamount to 1+1=1 for CDNS, will provide negligible financial gain, and may prompt a fit of M&A madness such that SNPS goes after LAVA.

6/18/08 * Sramana Mitra says Fister & Friends are  bold, imaginative, and courageous; EDA’s been dull for too long and finally a ballsy new Microsoft-like chapter opens.

6/19/08 * Gabe Moretti says there’s no chemistry between CDNS and MENT, most guys at MENT will flee an aggregated organization before they’ll put CDNS on their business cards, and MENT should seek solace with LAVA.

6/19/08 * John Blyler laments that Greed trumps Engineering.

6/19/08 * Bolaji Ojo says emotion has no place at the table when CDNS courage is on the menu.

6/20/08 * Mark LaPedus says Wally Rhines may be a lover, not a fighter.

6/27/08 * Gary Smith invokes reams of icky numbers that point to an anti-trust nightmare should CDNS acquire MENT, suggests the FTC will care despite stupid suggestions to the contrary, and says if it goes through lotsa CDNS guys will get canned because MENT’s got more up-to-date technology.

6/27/08 * Lou Covey chides the industry for forgetting it’s just business.

6/28/08 * Chris Edwards questions some of Gary Smith’s lingo, but agrees the deal’s a disaster in the making.

6/30/08 * Peggy Aycinena says it’s time to channel Don McLean and kiss EDAC goodbye .

6/30/08 * MENT hires Goldman Sachs and Merrill Lynch to provide advice.

7/1/08 * John Blyler says CDNS should watch its back lest it be forcibly acquired by AutoDesk or Dassault.

7/1/08 * MENT buys Flomerics in a hostile-turned-amenable takeover.

7/2/08 * John Cooley says 81% of his 279 (mostly anonymous) survey respondents have 220 reasons why the CDNS-MENT deal deserves a big fat raspberry. Many among the hundreds say Fister will get rich on the deal.

7/3/08 * Ivy Lessner says SNPS stands to gain just by standing by.

7/16/08 * Eric Savitz says Needham’s Richard Valera says CDNS has lost its luster, and gets slapped.

7/17/08 * anoints CDNS “Bear of the Week”.

7/18/08 * CDNS closes out the month down aproximately 9% since the June 17th bombshell.

7/18/08 * MENT closes out the month up approximately 25% since the June 17th bombshell.


Part 3 – Non-combatants

Dr. N. Venkat Venkatraman is the David J. McGrath Jr. Professor of Management at Boston University’s School of Management. We spoke by phone on July 10th to discuss what happens when Company A makes a hostile move on Company B. I asked him if the FTC is a real or imaginary threat, given such a move might reduce competition in an industry.

Venkatraman said, by and large today the FTC is allowing local [domestic] companies to merge “if there is a competitive alternative available” on the global market. Even though some might believe the Federal Trade Commission would put the brakes on a Company A/B merger due to the kind of market stats Gary Smith posted on June 27th, the FTC might not prohibit the merger if they perceived it would help create a bigger U.S. company to face the growing “onslaught of global competition.”

However, Venkatraman added, even if the FTC were to approve the merger, Company A might decide not to go forward if Company B had certain types of poison pills written into their governance that became effective in the event of a hostile takeover – things like large cash compensations for board members, executives, and major shareholders of Company B, or the early vesting of stock options for senior executives. The costs associated with such poison pills might eclipse the financial benefits that Company A hoped to garner by the acquisition.

I asked Prof. Venkatraman about the CDNS purchase offer delivered privately to the MENT Board of Directors in April, and rebuffed in May, which triggered CDNS’ public move in June to buy MENT shares directly on the open market.

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Review Article
  • Interesting Summary, Flawed Conclusions July 21, 2008
    Reviewed by 'JeffreyT'
    The article started off well but fell apart in a dramatic way towards the end. You went from recapping the events (which was good) to a offering flawed opinion. This last part was very poorly done because you gave a lot of credence to only one persons point of view.
    Personally I have a problem with so much quoting of "Nobody". If you use a quotes from an "industry expert" without a name being provided, then how can we gauge the persons level of knowledge.
    "Nobody" states several times about how Mentor is poorly run. But over the past 8 years they have grown at CAGR that is 2x the EDA industry. They have moved from a 15% market share to 19% market share over the past 6 years. Mentor has trimmed costs and made relatively small acquisitions that have begun to add to the revenue stream. They buy companies for the technology and people, keep those products, and merge them into the Mentor world (look at OPC technologies as one example).
    Cadence on the other hand is seeing revenues slip. They are losing market share as Synopsys and Mentor close in on them. They have made a number of acquisitions where the products were soon canceled or just floundered afterward. Anterim is a good example of this. At the current rates, Mentor, Synopsys, and Cadence would all be neck and neck in terms of revenue in two or three years.
    The statement was made about Mentor being poorly run several times by "nobody". The goal of the companies leaders should be shareholder return. A well run company provides this.
    MENT was up 55% from its 52 week low on Feb 11 prior to the CDN announcement - from $7.70 to $12.02 on June 13. The company has been on an upward trend. Sounds like a decently run company to me.
    CDNS has not moved at all in the same period - $10.70 on Feb 11 to $11.52 on June 13. And with the announcement it went lower and lower - below $10 again. Tell me how CDNS is so well run compared to MENT?
    Give me an example of why Cadence is a well run company and Mentor is a "country club environment" instead of just giving lame quotes from a "Nobody". Judging from the comments, I would guess that the "nobody" is Sramana Mitra who I feel is a poor judge of the EDA industry. I have read much of what he has posted on his blogs and continually finding myself shaking my head at his poor insight and unsubstantiated "expert opinion".
    BTW, at today's stock prices the only "large" EDA companies that is providing a positive return over a 2 year period are MENT (22% up) and SNPS (42% up). In that period LAVA is flat (0%) and CDNS is down almost 40%.

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