SAN FRANCISCO—EDA and IP vendor Synopsys Inc. said Wednesday (Feb. 22) it closed the $523 million acquisition of long-time rival Magma Design Automation Inc. and revealed that Rajeev Madhavan, Magma's chairman and CEO, would not be joining Synopsys as a result.
Few in EDA circles believed that Madhavan would join Synopsys as a result of the deal. Madhavan has been a fierce rival of Synopsys over the years, including engaging in a high-profile patent lawsuit that went to trial in 2006. Many believe that years of battles in court and the marketplace have bred personal animosity between Madhavan and Synopsys Chairman and CEO Aart de Geus.
Synopsys (Mountain View, Calif.), which also Wednesday reported quarterly results that exceeded analysts' expectations, said Madhavan would "be available for advice as we transition the company." Roy Jewell, Magma's president chief operating officer, will work with Synopsys on the integration of the companies, Synopsys said.
As per the original agreement, announced last November, Synopsys paid $7.35 per share to acquire Magma, or roughly $523 million net of cash acquired, the company said. Synopsys funded the acquisition using a combination of cash and debt, the company said.
Synopsys reported sales of $425.5 million for the quarter ended Jan. 31, up 9 percent from the previous quarter and up 17 percent from the year-ago quarter. The company reported a net income for the quarter of $56.69 million, or 39 cents per share, down 13 percent from the previous quarter but up 18 percent compared to the year-ago quarter.
On a pro forma basis, excluding charges, Synopsys reported a net income for the quarter of $82.3 million, or 56 cents per share, up from a pro forma net income of $68.3 million, or 44 cents per share, in the year-ago period.
Synopsys' results for the quarter, the first quarter of the company's fiscal year 2012, exceed consensus analysts' expectations, which called for sales of about $416 million and pro forma earnings of 52 cents per share, according to Yahoo Finance.
In a statement, de Geus said Syopsys' business for the fiscal first quarter was strong and broad-based. "Customers are aggressively moving to develop advanced new products, and demand for our technology and support is high," he said.
For the current quarter, Synopsys said it expects sales to decline to between $412 million and $420 million. The company said it expects to report income for the fiscal second quarter of 37 to 43 cents per share.
For the full year 2012, Synopsys said it now expects sales to be between $1.655 billion and $1.675 billion. The company said it expects to report earnings for the year of $1.33 to $1.48 per share.
Combined with a solid outlook for the rest of the year, our results allow us to raise our outlook for fiscal 2012, independent of any impact from the Magma Design Automation acquisition," de Geus said.
I am sure that there was a non-compete agreement. I have a feeling Rajeev's next move is going to be something a little bit outside the box of what he has done so far. Kind of a Joe Costello-like maneuver. Don't know why. It's just a hunch.
Rajeev is going to want to take time off to spend with family. He's sacrificed a great deal of that kind of time for Magma and for Ambit. But a non-compete clause doesn't preclude him from angel investment. This is going to release a lot of investment funds for EDA. http://www.element14.com/community/docs/DOC-41831/l/magma-acquisition-will-light-a-fire-under-the-eda-industry
In theory, there is ample scope, yes, as I do not believe the levels of innovation in EDA have been nearly high enough in the last decade or so. In practice, I am not sure the traditional EDA company business model is exciting enough for investors. Making money out of software alone is very difficult.
I wonder about that. Sure, in theory, I am sure a lot of companies would like to add Rajeev to their payroll. But Rajeev has been a CEO for more than 10 years. I don't see him becoming VP of marketing for another company. This is why, even if all the stuff about de Geus and Rajeev not getting along is not true, there is basically no room for him at Synopsys. They already have a CEO. Ditto Mentor. Now Cadence, if you believe the talk about Lip Bu Tan looking to replace himself and go back to being a VC and board member, that might be interesting. But it's difficult to see Rajeev heading Cadence, I guess in part because he has always been the little guy fighting against the big guys. And anyway, as mentioned above, there almost certainly is a non-compete agreement, so none of those scenarios can play out anytime soon.
It is a good decision from Madhvan, as it do not look ethical professional behave to fight with someone for years and then start working with them. And if someone does that then he will be working against his sayings.
Update- I just spoke with Aart de Geus and will be updating this story to reflect his comments. But the gist of it is:
1) Madhavan did not sign a non-compete agreement, after all. According to de Geus, there is no need for one. "Good executives don't sell a company and then immediately do something that would be a negative to that company." Translation, having sold his company, Madhavan is not going to go out and try to compete with what de Geus called "his family." De Geus also suggested, as I did above, that Madhavan's next venture might well be something outside of EDA.
2) De Geus also said that, contrary to popular belief, there is no ill will between he and Rajeev. He characterized their relationship as collegial. "We were competitors, but that doesn't mean that competitors can't have a high degree of mutual respect for one another." De Geus also praised Madhavan's handling of the situation since the announcement of that definitive agreement that Synopsys would acquire Magma.
A lot of people will probably characterize these comments as de Geus putting a nice spin on the relationship between the two men, but my honest opinion is that de Geus was speaking openly and honestly. He could have simply answered my questions about the non compete agreement and said nothing more, but he seemed bothered by the way the relationship between he and Madhavan is often characterized. Just my two cents...take it for what it's worth.
I agree with you Dylan. More than that, I would characterize the two men, DeGeus and Madhavan, as friendly rivals in a very competitive tough slug-it-out industry. The complexity of chip design and the challenges of fine-tuning the design tools calls for cool decisions, even when it brings in the lawyers to uphold what you consider your IP crown jewels. If DeGeus is sometimes characterized as the renaissance man, Madhavan could be labeled as the opportunist. When I was covering the design world I sat to the table with both, individually. Both impressed me as CEOs I would respect.
Magma was eyed by Mentor many years back when they were still a fledgeling but they for some reason decided otherwise.
Is there room particularly for startup EDA companies thriving and growing with these 3 big bears around? I guess their business model is kind of ancient which doesnt leave them much room to do sometihng big. They have unwittingly tied themselves to a rock which keeps them safe but they go no further.
If your company is public than anybody with enough $cash can buy it, even one mad Arab Sheikh can put the dollars on table and turn Synopsys into Oil company.
So may be the solution is not being presented on Nasdaq???!!
ATarraaque72- Sure, any company is for sale in a free market. But I am not sure I understand the relevance. I am fairly certain that Rajeev and anyone else who had stake in Magma were very happy with the outcome here. For reasons stated by Neo1 and others above, acquisition is the only realistic best case scenario for an EDA company outside of "the big three."
If you look at the way Rajeev ran Magma, there's little chance any other EDA company will be inviting him. Sure he was liked by the customers for that very reason...cheap licensing and "tweakability" for those who felt "EDA tools providing out-of-the-box solution" is a myth.
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