Or may be he is! Mike Fister stands to make quite a bit of money based on the bonus derived from reaching an unprecedented (for this industry) combined revenue as a short term consequence of the merger. Then he too will exit the industry a very rich man. Other, much less fortunate executives, will have to try to pick up the pieces and eventually sell the remaining technology for a song to Synopsys and Magma, just like Intergraph did with Veribest when it liquidated it to Mentor Graphics. Actually the Veribest sale involved more than just a song, but you will have to wait for the book I will write after I retire from the industry to learn the details of that "deal".

Anyway, back to Mr. Fister and the Napoleonic gamble. According to the press release, Cadence presented the terms of the acquisition proposal to Mentor on May 2nd. One must assume the Mentor board did not jump up and down with joy, or even asked to be allowed to choose the venue or flower arrangements for the "big announcement". So here comes step two: take it public and play on greed. Cadence is obviously counting on the fact that enough Mentor investors will see the $16.00 per share offer as such a great return on their money to pressure the Mentor Board to accept the offer, or at least negotiate for a sweater deal, may be $18.00 would be good enough. But it is the Cadence stockholders who should be worried and raise in opposition to the proposed acquisition.

What would Cadence obtain should the acquisition go through? It would strengthen its presence in three market segments: pre and post silicon verification with the Calibre product line, PCB design with the Expedition and Board Station product lines, and FPGA design and verification and market segment it does not serve (or serves only indirectly). An educated guess puts Mentor's revenue from those segments between $400 and $450 million for fiscal 2008. The rest of the revenue, approximately $400 million in fiscal 2008, were generated from products that are similar to those offered by Cadence. So after the acquisition, there will have to be a consolidation of products, migrating Mentor's customers to the Cadence family of products. That will cost money. Within eighteen months a significant number of present Mentor employees will be laid off in a cost cutting measure required by the poor cash situation the new company will find itself. For its $1.6 billion investment, Cadence will get, at best, a potential increase in revenue of $400 million per year, a significant larger cost structure in the short term with resultant less profit margin, and lower share prices. But initially, both revenue and share prices would increase should the acquisition go through, which is exactly what Mr. Fister is counting on.

What I find arrogant about the offer is that Mr. Fister and his Board must think that the rest of the industry is totally stupid and will not raise significant antitrust issues with regulatory agencies. We are talking about the combination of the second and third largest EDA companies, in an industry where the largest four companies' revenue amounts to around 80% of the total industry. The resulting company will, at least initially, have revenue greater than 45% of the entire industry! Even the most libertarian of regulatory agencies cannot turn a blind eye to this unbalanced situation: Cadence is proposing to purchase the EDA industry.

The Cadence gambit does have a positive side, though. The Design Automation Conference (DAC) Executive Committee can finally put to rest its concerns about Cadence's cancellation of its exhibit space for this year: obviously they wanted to be there, but just use the Mentor booth!