WILSONVILLE, OR -- The power play underway by Carl Icahn over Mentor Graphics may not leave the EDA software maker in obvious hands.

Synopsys, the largest player in EDA, has historically avoided printed circuit board design software, an aborted attempt with ViewLogic notwithstanding. Moreover, it tends to leave its ample cash reserves offshore, where it is not subject to US taxes.

Cadence, which is duking it out with Mentor for the No. 2 spot, dipped in this sea once before, with painful results. While Cadence chief marketing officer John Bruggeman told the Wall Street Journal a bid for Mentor might be in the offing, he declined to be specific. "While it makes a lot of sense for Cadence, it makes a lot of sense elsewhere, and it makes a lot of sense for us not to do it." And Cadence's balance sheet remains a work in progress, with $550 million in long-term debt and another $400 million deferred charges and liabilities. Adding another $2 billion or more -- Icahn's bid is roughly $1.9 billion -- would present a staggering debt load for a company that is generating consistent strong cash flow for the first time in three years.

No. 3 Zuken has just a 5% market share in North America and PCD&F sources indicate there is imminent action on that front. However, Zuken is much smaller than Mentor; its sales for the year ended March 31, 2010, were $183 million. Absorbing a competitor five times its size may be more than it could handle.

All this assumes Mentor would be swallowed whole. Zuken, ranked No. 2 worldwide in PCB, might find Mentor's circuit board design tool unit attractive -- and affordable. Cadence could see an opportunity to close the gap in IC tools with Synposys. A third party might enter the scene.

There is an insider's advantage to a fellow EDA company scooping up Mentor. Sales and marketing costs could be absorbed and redundant management cut, leaving a more streamlined, and profitable, company.

But in the end, it may be Icahn is the largest bidder. The question then becomes, Does Carl Icahn really want Mentor?

 

 

Submit to FacebookSubmit to Google PlusSubmit to TwitterSubmit to LinkedInPrint Article