Cadence Design Systems Inc.'s offer for Mentor Graphics is generating strong emotions in the electronic design automation market but Mentor Graphics' directors must base their final decision on the financial merits and disadvantages of the offer.
History will be the final judge of Michael J. Fister's decision to make a hostile bid for Mentor Graphics Inc.
Fister, president and CEO of Cadence Design Systems Inc., might not be able to close the deal considering the strong opposition from Mentor Graphics management and antitrust concerns.
Even if Cadence successfully completes the transaction, it might eventually be judged a mistake if integration proved problematic and if the company failed to secure the expected benefits.
Speculations about the future of the deal won't take away from Fister admiration for the share bravado of the proposed deal, which many speculated about but few thought would actually ever be initiated.
The proposed $1.6 billion acquisition of Mentor by Cadence has been heavily slammed in the press with some analysts and industry observers harshly condemning the transaction.
Some of the comments were surprisingly and very strongly emotional. Emotions drive life. They sustain relationships and are the energies that power nationalism. Emotion-driven actions in social contexts can be highly positive or negatively destructive depending upon the individuals involved or the circumstances.
There isn't and there shouldn't be much space for emotion, though, in the corporate world where success or failure is often determined by numbers, logic and cold-calculations.
Recent events demonstrate clearly that corporate executives, including those in the high-tech world, seem not to know always how or when to put aside their feelings about an enterprise to focus on the numbers that build shareholder value.
Jerry Yang, a co-founder of Yahoo Inc., and current CEO of the Internet web search company, is one such example. Yang rebuffed Microsoft's first acquisition offer, which was reportedly a high $40-plus per share.
Microsoft's subsequent offer was much lower—following a sharp decline in Yahoo's share price.
Yang and Yahoo's directors also spurned that offer. Now, even that lower offer is off the table and Yahoo has been forced to sign an agreement to carry advertisement sold by rival Google Inc.
A similar development is playing out in the EDA market. Cadence's offer for Mentor Graphics has been rejected by the company, which reportedly claimed the 30 percent premium offered by the acquirer was too low. Mentor Graphics' management also expressed concerns regulators might not approve the transaction.
Some analysts have savaged the deal for other reasons, including on worries about job cuts and Cadence's alleged disregard for the history of the industry. Some of these were valid observations while others disregard the economics of the proposed deal.
Cadence is admittedly in trouble and its sales growth has decidedly slowed. Some analysts point out the company has to make a major acquisition to refuel its growth engine.
Cadence's management and the board of directors are probably aware of this and have seized the opportunity of the company's strong cash position to strengthen it by offering to purchase Mentor Graphics.
Nobody could ever accuse Fister of lacking in courage, or the determination to take the most significant step he believes would help disperse the gloomy outlook many in the electronic design automation market are predicting for his company.
Mentor Graphics is obviously a strong candidate for take-over by a bigger rival. The company's stock price had retreated from the 52-week high and it was a fading No. 3 in the EDA market. With customers consolidating vendors, all the top three EDA vendors are locked in a fight for survival that is expected to decimate their ranks.
If Cadence had not stepped in, perhaps rival Synopsys would have. Even now, Synopsys could still make an offer for Mentor Graphics.
If Cadence eventually wins Mentor Graphics, it won't be because Fister was more brazen than rival executives. Mentor Graphics stockholders will do run their numbers and base their judgment on the strength of the offer.
Emotions might play a tiny role but only if Mentor Graphics' management and the board of directors fail to fulfill their obligations to shareholders.
Regulators can be appeased and perhaps Cadence might be encouraged to raise its offer if Mentor Graphics' management showed a willingness to negotiate in good faith. It would be a shame if Mentor Graphics spurns this offer on emotions than on the facts.