Morphing Mentor: Haiku haunts Wilsonville

In July 2008 and with much fanfare, Cadence declared its intention to purchase Mentor Graphics. The Cadence executive team was so confident the purchase would go through, then-CFO Bill Porter declared during an analysts’ call at the time: This acquisition is going to happen, Mentor needs us. Accept it and move on.

Well, people did move on. By September 2008, Cadence CEO Mike Fister, CFO Porter and the entire executive team had indeed moved on. CDNS Board member Lip-Bu Tan was named acting CEO and here, 8 years later, he continues to serve in that role.

* Results: Mentor stock in May 2008 was at about $11.50/share, by June 2008 it had moved to $16, by October 2008 it was down to less than $8, and by March 2009 was barely above $4. Ouch.

Then in 2010/11 – again with much fanfare – raider/savior Carl Icahn began buying up Mentor stock, declaring his intention to stuff the Mentor Board of Directors and light a fire under company management in Wilsonville. People there needed to get a move on, he seemed to be saying. The place was being run like a Country Club, way too laid back, relaxed and easy-going.

Icahn won a proxy fight in early 2011 and put three of his guys on the Mentor Board by dislodging three board members ostensibly loyal to Mentor CEO Wally Rhines. Rhines and Icahn, per reports, then shook hands and began to move on. The increase in stock valuation attests to the success of that relationship. At least until recent times.

* Results: Stock in December 2010 was up to $12/share, it peaked at $16 in February 2011 when Icahn was stuffing the board, was below $10 by September 2011, but up again by October 2015, reaching new heights at $27/share. Wow.

Then two things happened in November 2015: Wally Rhines received the Phil Kaufman Award and Mentor’s stock tanked after a poor earnings report, the two events undoubtedly unrelated.

And not surprisingly, Icahn started losing interest. He sold off half of his position in Mentor in February of this year, just prior to the company’s next earnings report [Mentor stock fell 2% on the day Icahn sold], and dumped his remaining position in May.

[Although Icahn may not have shaken things up to his desired levels in Wilsonville over the last 6 years, he’s made money in the process nonetheless. In the range of tens of millions per some estimates.]

Which brings us up to current times, and the next chapter in the Mentor’s whimsical saga.

At the end of June 2016, a group of investors who all share the moniker Elliot [see below] owned just north of 4% of the company. By September, however, the Elliot group had upped their ante to 8+% and Wall Street loves it.

* Results: Between the end of June and the end of September this year, Mentor’s stock value has gone from $21.36 to $26.47, an increase of almost 25%. Nice.

And why is Wall Street loving it? What is Elliot et al promising that investors want to hear?

Here’s a sound bite from the Elliot Group’s SEC filing, dated September 19th.

The Reporting Persons [aka the Elliot Group] believe the securities of the Issuer [aka Mentor Graphics] are deeply undervalued. The Reporting Persons believe there are numerous operational opportunities, including enhancing operational efficiency and revenue quality, as well as strategic opportunities for the Issuer that would improve shareholder value. The Reporting Persons have initiated a dialogue with the Issuer’s Management and Board of Directors (the “Board”) regarding those opportunities.

Wouldn’t you like to be a fly on the wall to hear that dialogue between the Reporting Persons and the Issuer’s Management and Board of Directors?

I’m guessing it goes something like this: Get off your friggin’ quisters and start making more money! Now!

Yep, yet another group of somebodies wanting to light a fire under the folks in Wilsonville. Will these saviors never learn?

Wally Rhines & Co. don’t want to sit on a fire, or even be in the fry pan. They’re happy.

The Haiku says it all …

Cadence. Carl Icahn.
Country Club in Wilsonville.
Elliot won’t change it.

Nonetheless, let’s wish them all good luck – the Reporting Persons and the Issuers.

And let’s also wish for ourselves that we can stick around long enough to see how Chapter 3 of “Morphing Mentor” plays out.

More importantly, if you missed the chance to invest in Mentor at the start of this cycle of the saga, just wait.

If we’ve learned nothing else from this EDS morality tale, we’ve seen with certainty …

That what goes up will
Then go down and up again
And down again, yep.

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Who’s in the Elliot Group?

This statement is being filed by Elliott Associates, L.P., a Delaware limited partnership, and its wholly-owned subsidiaries (collectively, “Elliott” or “we”), Elliott International, L.P., a Cayman Islands limited partnership (“Elliott International”), and Elliott International Capital Advisors Inc., a Delaware corporation (“EICA” and collectively with Elliott and Elliott International, the “Reporting Persons”). Paul E. Singer (“Singer”), Elliott Capital Advisors, L.P., a Delaware limited partnership (“Capital Advisors”), which is controlled by Singer, and Elliott Special GP, LLC, a Delaware limited liability company (“Special GP”), which is controlled by Singer, are the general partners of Elliott. Hambledon, Inc., a Cayman Islands corporation (“Hambledon”), which is also controlled by Singer, is the sole general partner of Elliott International. EICA is the investment manager for Elliott International. EICA expressly disclaims equitable ownership of and pecuniary interest in any shares of Common Stock.

***************

Tags: Bill Porter, Cadence, Carl Icahn, Elliott Associates, Lip-bu Tan, Mentor Graphics, Mike Fister, Wally Rhines

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