A Contrarian View on the Cadence-Mentor Merger

On July 2, 2008, John Cooley at ESNUG conducted a survey of electronic design automation (EDA) users regarding the potential merger of rivals Cadence and Mentor. Eighty-one percent of those interviewed disapproved of the proposed takeover by Cadence. EVE was among the small percentage supporting the merger. In this Q and A, Lauro Rizzatti, vice president of marketing and general manager of EVE-USA, explains why.

Q: Why does EVE favor the Cadence-Mentor merger?

LR: We have to separate business from our emotions. From a business perspective, EVE believes the merging will be beneficial for the EDA industry. For too long, three giants have dominated the EDA industry, controlling almost 90 percent of the market. They do not allow room for smaller startups to emerge. These companies desperately compete on a price basis, granting mega discounts that erode profits. The merger of the number one and number three companies in the EDA industry will open up holes for smaller companies to breathe and prosper. The change will also reduce the pressure to discount prices and will encourage growth. Once again, companies will be able to attract the attention of the investment community. The business needs to grow.

From the emotional viewpoint, I regret the fallout that the merger will bring. I spent 11 years at Mentor, and still have many friends there – professional, competent, experienced people who served their employer with loyalty and dedication and who would deserve better than to be cut in an effort to combine resources.

Q: Both Cadence and Mentor offer emulation systems and compete head-on with EVE. Would the merger help or hinder your market position?

LR: The consolidation of our two competitors is the best part of the story for EVE. However, let me first note that over the past 12 months, EVE has risen to the second position in the worldwide acceleration/emulation market, ahead of Mentor. Regarding the potential merger, we believe that Cadence will keep its acceleration/emulation offerings and drop Mentor's. Here at EVE, we long suspected that Mentor's emulation business has failed to generate profits for several years and has eaten the company's resources instead. The merger could be an opportunity to clean house. Not only would the entire industry benefit, but suddenly, EVE faces just one competitor. We'd still have to sort out what the merger means. Will the merger make Cadence stronger? We will have to wait and see.

Q: Do you believe this is going to be a hostile takeover?

LR: Yes. Ironically, this merger proves that the old saying "what goes around, comes around" is true. Back in the late 1990s, Mentor launched an all-out attempt to acquire Quickturn but lost the bid to Cadence, which acted as a "white knight." This takeover attempt overlapped the end of Quickturn's emulation-patent lawsuit against Mentor, which Quickturn won. Mentor may have learned a lesson then that could help it to weather this attack. In the next few months, we will see how this all plays out.