August 18, 2008
Blood Sport – Securities & Security
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Peggy Aycinena - Contributing Editor

by Peggy Aycinena - Contributing Editor
Posted anew every four weeks or so, the EDA WEEKLY delivers to its readers information concerning the latest happenings in the EDA industry, covering vendors, products, finances and new developments. Frequently, feature articles on selected public or private EDA companies are presented. Brought to you by If we miss a story or subject that you feel deserves to be included, or you just want to suggest a future topic, please contact us! Questions? Feedback? Click here. Thank you!

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.

Too late.

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,
Kilopass and
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, Contributing Editor.

Review Article
  • Get Real August 22, 2008
    Reviewed by 'Bob P'

    Cunning? Vengeance? Oh please. This is business. Business is war. Plain and simple.

      2 of 2 found this review helpful.
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  • It's not clear that Mentor is harmed as much as you believe August 19, 2008
    Reviewed by 'Sean Murphy'
    Mentor closed at 10.79 on May 22, which was the last time they reported. They closed today at 10.62, so down 17 cents. It's not at all clear that animosity drove the Cadence takeover offer, as much as the belief on the part of Cadence management that they could do a better job running a combined company. There may be many things right or wrong in that calculation but wanting to "damage Mentor" strikes me as a remote possibility, especially given how damaging this set of actions may prove to Cadence.
    When they announced the deal on June 18, Cadence closed at 10.84. They closed today at 7.74, so they are still down almost 29% from that level (primarily due to the reaction to their last quarter results, but clearly doubts about the merger's viability were expressed on the analyst call, and the FTC's reaction presaged rough sledding no matter what).
    This combination of doubling down on their private offer by making it public, followed by a sudden removal cannot be a positive for Cadence. Mentor's concerns that regulatory issues would be problematic was certainly borne out by FTC actions to date.
    We don't know what results Mentor will announce this quarter (or at least I don't) but it's not clear that accurately assessing that the merger was problematic puts Wally in hot water. When Cadence revised their revenue and earnings estimates strongly down for the rest of the year they probably limited their ability to finance the acquisition to that point that it was no longer viable.
    The thing that's surprising to me is that they also announced a $500 million stock buy back (about 1/4 of their market cap on the day that they announced it) when they withdrew the merger offer. This is on top of an earlier $400M buy back this year. They have put all of their other smaller (friendly) acquisition efforts on hold, it would seem that they should go back to acquisitions of promising technologies in emerging markets as a way to ignite growth.
    Sean Murphy

      6 of 7 found this review helpful.
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