Icahn Ups Ante With Mentor Graphics

Carl Icahn is embroiled in another battle. This time with Mentor Graphics. One day after they rejected Ichan’s $17 per share offer, Icahn fired off a letter to Mentor’s Board of Directors expressing his outrage.


Carl Icahn is embroiled in another Icahn-style battle. This time with Mentor Graphics.

One day after the software company rejected the septuagenarian’s $17 per share offer for the software company, and the same day Mentor announced plans to sell in a private placement up to $253 million of convertible debt, Icahn fired off a letter to Mentor’s Board of Directors expressing his outrage.

“On the one hand, the company indicates that the price that we offered as a stalking horse bid for the company is far too low and a sale of the company to a strategic acquirer is too risky,” he wrote. “On the other hand, it is choosing to issue securities convertible into stock that would dilute shareholders and make a tender offer or other acquisition proposal by a potential acquirer a great deal more difficult to accomplish.”

Later Tuesday evening, Icahn fired off another letter to the Board offering to lend the company $220 million for 2 ½ years at an interest rate of 6.25 percent, but it would not be convertible into common shares and will not have any change of control penalties associated with it. He also offered to serve as a stalking horse without fees to allow the company to seek better terms in the market.

“Based upon your earnings guidance of $1.00 per share for your next fiscal year, we fail to see why the company would not be able to retire this debt with earnings generated during that timeframe, thereby leaving the company debt free,” he said.

Icahn has some leverage. Shares of Mentor closed Tuesday down 3.55 percent, to $14.67, a resounding vote of disapproval for the company recent rejection of Icahn’s $17 per share offer and the convertible offering. It also opposes doing a deal with competitors Synopsys and Cadence Design Systems, whose $16 per share offer was rejected in 2008.

Icahn no doubt is counting on disgruntled shareholders to back his plan, support he failed to receive in his previous hostile situation this year with Dynegy.

If Mentor rejects his latest offer, Icahn, who owns more than 14 percent of Mentor’s stock, will just move ahead with his proxy fight. Earlier this month he said he would place three of his nominees to be elected to the Board of Directors.

Icahn could use a win. If nothing else, it would send a signal to Corporate America and Wall Street that he still has his mojo. Afterall, in the past six months his takeover efforts were rebuffed by three companies--or their shareholders—Mentor Graphics, Dynegy and Lions Gate Entertainment.

Icahn also recently announced he is returning all of the capital of his outside investors, in large part because he is concerned about the potential to dip into his own pockets for redemptions should the overall stock market decline again after nearly doubling in two years.

My bet is Icahn will prevail this time.