Shares of electronic design automation software provider Mentor Graphics (NASDAQ:MENT) surged on Monday following news that German engineering giant Siemens (NASDAQOTH:SIEGY) had agreed to acquire the company for $4.5 billion. At 12:15 p.m. EST, shares of Mentor Graphics were up 18.5%, while Siemens stock was down about 0.5%.
Mentor shareholders will receive $37.25 per share in cash from Siemens, a 21% premium to the closing price on Friday. The companies expect the transaction to close during the second calendar quarter of 2017, with Mentor becoming part of the product lifecycle management software business within Siemens' digital factory division.
"With Mentor, we're acquiring an established technology leader with a talented employee base that will allow us to supplement our world-class industrial software portfolio," said Klaus Helmrich, Siemens managing board member. "It will complement our strong offering in mechanics and software with design, test and simulation of electrical and electronic systems."
Mentor generated roughly $1.2 billion of revenue during the latest fiscal year, with an adjusted operating margin of 20.2%. The transaction is expected to be accretive to EPS within three years of closing, with 100 million euros of EBIT achieved through revenue growth and anticipated margin expansion.
Mentor Graphics has suffered from stagnating revenue and slumping profits in recent years. Revenue declined by 5% in the latest fiscal year, and GAAP net income tumbled 35%. Mentor CEO Walden Rhines sees the acquisition creating new growth opportunities. "Combining Mentor's technology leadership and deep customer relationships with Siemens' global scale and resources will better enable us to serve the growing needs of our customers, and unlock additional significant opportunities for our employees."