Siemens To Buy Mentor For $4.5B

By Ed Sperling & Jeff Dorsch
Siemens announced today that it has reached a deal to buy Mentor Graphics for $4.5 billion in cash. The move, if approved by regulators, would greatly expand Siemens’ capabilities in multi-physics design and embedded software for everything from semiconductors to automotive wiring harnesses. The transaction is expected to close in the second quarter of 2017.

Siemens’ decision to add EDA capabilities to its portfolio is a reflection of just how complex the chip, IP and system development space has become. The company said the Mentor acquisition is part of its Vision 2020 concept for what it calls the “New Industrial Age.” Mentor will be folded into the product lifecycle management software business of Siemens’ Digital Factory (DF) Division.

“With Mentor, we’re acquiring an established technology leader with a talented employee base that will allow us to supplement our world-class industrial software portfolio,” said Klaus Helmrich, member of the Managing Board of Siemens, in a statement. “It will complement our strong offering in mechanics and software with design, test and simulation of electrical and electronic systems.”

Added Wally Rhines, chairman and CEO of Mentor: “Siemens is an ideal partner with financial depth and stability, and their resources and additional investment will allow us to innovate even faster and accelerate our vision of creating top-to-bottom automated design solutions for electronic systems.”

Rhines said in a phone interview that Siemens approached Mentor concerning a potential combination about six months ago. Rhines will stay with Mentor once the merger is complete.

“It’s a wonderful outcome, not just for shareholders, but for customers and our employees,” Rhines said. “Siemens’ PLM is a business that wants to expand. They want to take advantage of the total product line. Their vision is that with additional investment, that Mentor Graphics offers the potential for more rapid growth than we’ve been able to do with our limited resources, and they want to take advantage of that growth, preserve the brand equity, and grow the business in mediaries all the way from integrated circuit design up through the various types of system design we have, as well as our automotive and embedded software businesses.”

He said of Siemens, “They bring worldwide customer relationships, contracts, sales, magnification of the effort we have, especially in large enterprise customers, like the automotive and aerospace industries.”

All of this is contingent on regulatory approval, of course. In the past couple years regulatory agencies have blocked a number of such deals from proceeding, including the Lam Research acquisition of KLA-Tencor, Applied Materials’ acquisition of Tokyo Electron, and Tsinghua Unigroup’s acquisition of Micron. It is uncertain how regulators will view the acquisition of one of the Big Three EDA companies, which is also the leading supplier of wire harness design software for the automotive and aerospace industries and the de facto supplier of design for manufacturability software for fabs and foundries.

In addition, President-elect Donald Trump has run a campaign to bring business back to the United States, rather than allowing manufacturing and technology slip outside of the country’s borders. It remains to be seen how that will play out as the Trump transition team begins to shape up over the next couple months.

Siemens, for its part, is a massive engineering company. The company generated revenue of $85.32 billion in fiscal 2016, ended Sept. 30, and net income of $6.0 billion, which is roughly the gross revenue of all of the Big Three EDA companies combined. Based in Berlin and Munich, Siemens has been in business for 165 years, focusing on giant power transmission infrastructure, medical imaging equipment, and industrial automation.

In 1999, Siemens spun off its semiconductor operations into Infineon Technologies. Infineon, in turn, spun off its formal verification group into OneSpin Solutions in 2005, and spun off its Memory Products division into Qimonda in 2006. Due to unfavorable conditions in the DRAM market, Qimonda was forced into insolvency in 2009 and now functions as a technology licensing company.

Earlier this year, Infineon agreed to acquire Cree’s Wolfspeed Power & RF division for $850 million in cash. The transaction is scheduled to close by the end of 2016.

Elliott Management, a hedge fund known as an activist investor, reported taking an equity stake of 8.1% in Mentor two months ago, saying Mentor’s shares at the time were “deeply undervalued.” Siemens is paying $37.25 per share for Mentor’s common stock, a 21% premium to MENT’s closing price on Friday. Elliott Management is supporting the sale to Siemens.

Mentor reportedly hired Bank of America last month to review its strategic alternatives, including a sale of the company.

Cadence Design Systems, an EDA competitor, made an unsuccessful hostile takeover bid for Mentor in 2008. And Carl Icahn, another activist investor, led a successful proxy fight with Mentor in 2011, gaining three seats on the company’s board of directors. Icahn sold his last shares in Mentor in April of this year.

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