Mentor Graphics Issues Open Letter to Shareholders

  • Cadence’s Unsuccessful Bid for Mentor Graphics. Icahn cites Cadence’s June 2008 letter withdrawing its acquisition proposal as somehow indicative of Mentor Graphics’ failure of corporate governance. The facts are that immediately prior to the withdrawal Cadence: (1) announced that it significantly reduced its revenue and earnings guidance and suffered an immediate 31% drop in its stock price; (2) received a second request from the FTC regarding the antitrust implications of its proposal for Mentor Graphics; and (3) lost the support of its commercial bankers to finance its proposal for Mentor Graphics. Within sixty days of the withdrawal of Cadence’s offer, the CEO and four of the five other officers named in Cadence’s prior proxy left the company.

    Icahn’s suggestion that Cadence’s withdrawal resulted from Mentor Graphics’ governance practices simply defies logic.
  • Shareholder Rights Plan. Icahn states that Mentor Graphics implemented a rights plan shortly after the disclosure of his accumulation of Mentor Graphics shares. In truth, the rights plan was adopted approximately one month after Icahn filed his first 13D on May 27, 2010, disclosing 6.86% ownership, and only after he twice reported increases in his stake.

    Icahn’s history of creeping accumulations of stock at LionsGate Entertainment and other companies shows why your Board’s action was a prudent step to prevent Icahn from taking control of the company without paying Mentor Graphics’ other shareholders a control premium.
  • Meeting Date. Icahn’s criticism of the meeting date for the Annual Meeting of Shareholders is misplaced on a number of scores. The May 12th meeting date is consistent with Mentor Graphics’ historical practice. Moreover, the timing of our Annual Meeting clearly did not impede the nomination of directors by shareholders; we received notice of a total of six nominees from two different shareholders within 10 days of announcing our meeting date.


Icahn wants you to believe that Mentor Graphics’ share issuances have been destructive to shareholder value. This simply is not the case.

In the past five fiscal years, starting from December 2006, Mentor Graphics has issued incremental shares for two primary purposes: to make bolt-on acquisitions and through the Employee Stock Purchase Plan (ESPP).

  • Acquisitions have accounted for 38% of incremental shares and have resulted in the addition of businesses such as LogicVision and Valor.
  • These acquisitions have bolstered our competitive position significantly in applications such as Design for Test and Printed Circuit Board.
  • The ESPP accounted for 47% of the incremental shares.
  • The ESPP is a program in which approximately 65% of our eligible US employees participate.
  • Employee stock options and Restricted Stock Units were the smallest component, accounting for approximately 15% of the total.
  • In fact, over the last five years, Mentor Graphics’ average annual stock based compensation as a percentage of revenue and our average annual grants of options and awards of Restricted Stock Units as a percentage of our shares, or burn rate, are each lower than those at Cadence and Synopsys.

We believe that these issuances of shares have contributed to an overall increase in shareholder value, helping Mentor Graphics’ stock price performance exceed that of Cadence, Synopsys and the NASDAQ Index in the past one, three and five year periods.


Your Board unanimously believes that continued execution of our strategic plan offers the greatest value to all Mentor Graphics shareholders and urges shareholders to reject Icahn’s platform and his nominees.

Your management has had numerous conversations and meetings with Icahn’s representatives. They never made suggestions regarding Mentor Graphics’ SG&A expense or stock repurchases — nor did they raise the subject of board representation for Icahn during the period of more than eight months between the time when Icahn took his initial stake in Mentor Graphics and the nomination of his slate. Icahn’s alleged new ideas, borrowed directly from what your Board is already doing, are simply a shallow attempt to find a reason for you to elect his nominees.

Your Board firmly believes that the likely outcome of Icahn’s “Plan A” of a public sale process would result in a failure to sell the company that would seriously harm your company’s relationship with its customers and employees. Icahn’s “Plan B” is nothing more than an attempt by Icahn to recycle two elements of Mentor Graphics’ existing strategy and present them as his own. You do not need new directors to do what your Board is already doing today.

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