Another One Bites the Dust

Out of the doorway the bullets rip, to the sound of the beat. Another proposed merger bites the dust.

Cadence Design Systems (Nasdaq: CDNS  ) has pulled its $1.6 billion bid for rival Mentor Graphics (Nasdaq: MENT  ) , citing reluctance by the Mentor board to "engage in substantive discussions" around the deal. $500 million of the acquisition budget has now been set aside for share repurchase action, nearly doubling the buyback authorization to a total of $912 million.

Mentor acknowledged Cadence's withdrawal, and immediately pointed out that Cadence was having trouble financing the acquisition and that the FTC might have a few objections. The portfolios of the two chip design software specialists are mostly complementary, but the overlap is still large enough that multinational giants like International Business Machines (NYSE: IBM  ) , STMicroelectronics (NYSE: STM  ) , and LSI Logic (NYSE: LSI  ) would have little choice but working with Cadence/Mentor design packages.

I thought the combination would have made a lot of sense, creating a single vendor that covers more of the chip design pipeline than either company could do on its own, and for what I thought was a pretty fair price. Some of our Motley Fool CAPS players disagreed from the get-go, though, and it looks like they were right. Mentor wouldn't even talk to its suitor without a bigger dowry, and the corporate credit crisis may have been the final straw that broke this camel's back.

First Microsoft (Nasdaq: MSFT  ) couldn't convince Yahoo! (Nasdaq: YHOO  ) to take a low bid, and now Mentor pulls the same trick on Cadence. It's tough out on the Street for a matchmaker these days. Are you hanging on the edge of your seat? Let's see how many more mergers will bite the dust this season.

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure thinks that Queen rocked harder than they had any right to.


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  • Report this Comment On August 18, 2008, at 11:12 PM, djepayne wrote:

    I was against this hostile merger from the first moment that I heard about it. Why? Because of extreme product overlap.

    Think about. Should Ford buy GM? Should Microsoft buy Google? Should Intel buy AMD?

    I hope that you answered a resounding no to all three questions too.

    www.marketingeda.com

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