SAN FRANCISCO—Billionaire financier Carl Icahn lashed out at EDA vendor Mentor Graphics Corp.'s board of directors Tuesday (March 29), slamming the board for rejecting his $1.9 billion takeover bid and announcing plans to raise up to $253 million through private placement of convertible bonds.
Mentor said Monday that its board voted unanimously to reject a $1.9 billion takeover bid made by billionaire financier Carl Icahn last month. On Tuesday, the company said it would raise money through private placement of between $220 million and $253 million worth of convertible bonds due in 2031.
In a letter to Mentor's board of directors dated Tuesday, which was also distributed over news wires, Icahn said Mentor's move "in the dark of night" to raise capital through convertible bond offering "should outrage our fellow shareholders as it does us."
Icahn accused Mentor's board of behaving inconsistently by saying that his $17-per-share stalking horse bid is too low and then offering up to $253 million worth of bonds convertible into Mentor stock. The bond offering will dilute shareholders and make a tender offer to acquire the company by another party much more difficult to accomplish, Icahn said.
"The continual dilution of the Mentor Graphics common stockholder appears to be business as usual for the company," Icahn said.
Mentor (Wilsonville, Ore.) said Wednesday it intends to use the proceeds from the bond offering, about $213 million, to repay existing debt. If buyers purchase the entire $253 million worth of bonds, the company will use remaining net proceeds for general purposes, including capital expenditures and working capital, Mentor said.
Icahn, who controls nearly 15 percent of Mentor's outstanding shares, has been for months agitating the company's board of directors, saying in a letter that Mentor's shares were undervalued and initiating a proxy fight for board seats. Analysts believe his $1.9 billion offer to acquire the company was intended to induce Mentor into selling to another buyer.
Exactly who would be interested in buying Mentor remains unclear. Though Cadence Design Systems Inc. initiated a bid to take over Mentor in 2008 (later abandoned), the conventional wisdom is that overlapping product offerings between EDA's "big three"—Mentor, Cadence and Synopsys Inc.—would make a merger between any two messy and an inefficient use of capital. Some believe that Icahn's goal is to break Mentor up, selling some pieces of the company to Cadence or Synopsys and others to a company that operates in the mechanical CAD space, such as Autodesk Inc. or Dassault Systèmes S.A.
Gary Smith, principal analyst at Gary Smith EDA, said month that a merger between a mechanical CAD company such as Paris-based Dassault and an an EDA company wouldn't make sense for at least five years. "I can see something like this happening in around 2018, but not now," Smith said.
Last June, Mentor adopted a "poison pill," presumably to thwart any hostile takeover attempt by Icahn. That measure allows Mentor stakeholders to purchase more shares of the company at a discounted price if any shareholder acquires more than 15 percent of the company's outstanding shares without the board's approval. Icahn and companies controlled by him own just under 15 percent of Mentor.
Earlier this month, Mentor urged shareholders not to vote for Icahn's proxy, which seeks to replace some of Mentor's directors with his own nominees. In that letter to shareholders, Mentor emphasized the recent success of the company, including its record revenue of $914.8 million. At the time, Mentor's board also amended several of the company's bylaws, including capping the size of the board of directors.
In his letter Tuesday, Icahn said Mentor's stock price has been stagnant for 17 years and questioned the board's motivation for issuing convertible bonds. He urged the board to drop the convertible bonds plan and said he has heard from other shareholders who are "outraged" by the proposal.
"This is an example of why the composition of the board cries out for new blood—members who consider what is best for our fellow shareholders and are not satisfied with the status quo," Icahn said.
A Mentor spokesperson said the company had no comment on Icahn's latest letter.
Icahn, one of the richest people in the world, is considered an activist investor and corporate raider who has frequently clashed with the boards of directors of companies in which he has a stake.