By Mike Rogoway, The Oregonian
Mentor Graphics, under growing pressure from investors, said Monday it will be acquired by German engineering giant Siemens for $4.5 billion.
Siemens will pay $37.25 a share in cash, a 21 percent premium on the Wilsonville company's share price when trading concluded Friday. Mentor stock had already been climbing on reports it was on the market. The stock surged 18.3 percent on the news, closing Monday at $36.29.
Mentor Graphics
Headquarters: Wilsonville
Employees: 5,700, including approximately 1,000 in Wilsonville
Technology: Electronic design automation software for engineers who design semiconductors, airplanes, autos and other sophisticated electronics
Sales: $1.18 billion (fiscal 2016), down from $1.24 billion
Profits: $96.3 million, down from $147 million
Mentor is Oregon's largest pure technology business, with annual revenue of nearly $1.2 billion and roughly 1,000 employees at its headquarters in Wilsonville. It's the latest in a string of Oregon tech companies to be sold in recent years amid a wave of consolidation across the chip industry.
Mentor chief executive Wally Rhines, who has run the company since 1993, said Siemens plans to retain the company's brand and its Clackamas County headquarters.
"Their intent is to invest in the company. They are planning to provide the resources that will allow us to grow faster," Rhines said. "Siemens has reaffirmed its confidence and plans for the Oregon site."
The chip industry in which Mentor operates has been undergoing a fundamental shift, as its largest companies seek to boost growth and improve profits by expanding their markets through acquisitions.
Mentor Graphics' history
1981: Nine employees leave Tektronix to start Mentor Graphics Corp. in Beaverton
1984: Mentor raises $55 million in an initial public stock offering
1985: Revenue hits $198 million
1986: Mentor employment grows to 1,000 workers
1991: Mentor moves to new campus in Wilsonville
1993: Former Texas Instruments Vice President Wally Rhines named CEO
2006: Citadel Investment Group takes a 9 percent stake in Mentor, says the company has "underperformed," and urges cost cuts and other reforms to boost shareholder return. The Chicago investment firm divests by year's end, following a 72 percent rise in Mentor's stock.
2008: Mentor fights off a hostile takeover bid by rival Cadence Designs Systems
2009: Share price hits an all-time low, $3.44 amid global recession
2010: Billionaire activist investor Carl Icahn takes a 12 percent stake in Mentor
2011: Icahn wins a proxy fight with Mentor management, installing three of his representatives on the company's board. He doesn't follow through with plans to sell or break up the company.
2016: Icahn sells his piece of Mentor but another investor, Elliott Management, buys a stake and begins agitating for change
In Oregon, once home to several mid-sized chip companies, the trend has now all but eliminated locally based semiconductor businesses. This year alone, Cascade Microtech and FEI Co. sold their businesses, and just this month Portland-based Lattice Semiconductor said it will sell to a little-known investment firm with funding from China.
Founded in 1981 by employees from Tektronix, Mentor makes electronic design automation software. Engineers use the technology to craft semiconductors, airplanes, cars and other sophisticated electronics. Mentor is the smallest of three large companies in the EDA market and had for years been the subject of complaints from investors who wanted better performance from the business.
Observers persistently speculated that Mentor might combine with one of those larger rivals, Synopsys or Cadence Design Systems, but skeptics said antitrust regulators would scuttle any such deal. The sale to Siemens, a larger company operating in other markets, avoids such concerns.
On Monday, Siemens said it expects "synergies" from the sale that will cut costs and improve profitability while expanding its own software capabilities. The German company said it will incorporate Mentor's technology with its own to enable design capabilities across mechanical, engineering and software.
"We are now able to offer our customers more complete software tools," Siemens spokesman Richard Speich said Monday. "We think it is a really good addition to our digital portfolio."
Thomas Diffely, an investment analyst who follows Mentor for D.A. Davidson, said Siemens sees Monday's deal as an opportunity to expand the Oregon company rather than try to boost profits with cutbacks.
"For Mentor, I don't think much changes for a while as far as headcount," Diffely said. "It sounds like Siemens really thinks they can use their scale to grow Mentor's business."
An activist investor called Elliott Management reported last month that it had acquired an 8.1 percent stake in Mentor and urged the company to take steps to improve its performance — including possibly selling the business.
Elliott has frequently arranged sales of companies to private equity firms, but Siemens said the investment fund backs Monday's deal.
An engineering powerhouse, Siemens reported more than $80 billion in revenue last year. The German conglomerate operates in the energy, technology, railway, water treatment and construction industries.
Mentor has twice before been the subject of takeover campaigns. In 2008, it fought off a hostile takeover from Cadence, and in 2011 it held back an effort by billionaire Carl Icahn to sell or break up the company.
This time, though, Mentor didn't appear to have any appetite to fight for its independence. Rhines said Siemens came to the table with a different approach than prior campaigns to remake the business. Rather than break up Mentor, he said, the German company wants to use its design tools to complement Siemens' existing products and expand offerings to its customers.
"Here is a situation where someone is looking at the total entity, the total value," Rhines said.
Siemens said it plans to close the Mentor deal next spring, and Rhines, who turned 70 last Friday, said he expects to remain with the company for at least a year, and possibly longer.
A throwback to another era in Oregon tech, Mentor operates on a bucolic 53-acre campus in Wilsonville with amenities, which include an on-site child care center, that are highly valued by employees. Rhines said Siemens has a reputation for social responsibility, and he doesn't foresee those perks going away.
"I expect them to endorse these kinds of policies," Rhines said. "I don't see any significant change to the operations here."
If Mentor's alternatives were selling out to a rival or restructuring through a private equity deal, the sale to Siemens probably represents the best outcome for employees and for Oregon, said Gerry Langeler, a Mentor co-founder and former company president.
Electronic design automation is a highly specialized field, and Langeler said that Siemens will need Mentor's salespeople, marketers and engineers who know the industry. Only finance, he said, could easily be subsumed by Siemens.
So Monday's deal is "much better than private equity, who would have either chopped it up or split it apart and loaded it with debt," said Langeler, who spent 11 years at Mentor before joining the venture capital firm OVP Venture Partners.
Still, Langeler said, he felt a pang of sadness when he saw news of the deal Monday.
"It was nice to be one of the few, independent, surviving public startups here," he said.
©2016 The Oregonian (Portland, Ore.) Distributed by Tribune Content Agency, LLC.
