- We project higher revenues, greater earnings and improved operating margins in the current fiscal year;
- We expect to generate significant cash flow over the next few years; and
- We intend to use cash flow generated by Mentor Graphics’ growth and increasing margins to return approximately $150 million of capital to shareholders through stock repurchases or dividends over the next three years.
REJECT THE RISKY PLATFORM FOR ICAHN’S NOMINEES OF A PUBLIC SALE PROCESS — IT COULD SERIOUSLY HARM YOUR COMPANY
Although he has recently tried to articulate new plans for his nominees to execute, Icahn’s “Plan A” still remains a risky and potentially destructive public sale process for your company — a process that is designed for Icahn to profitably exit the position he has taken in Mentor Graphics.
- Icahn continues to ignore the regulatory obstacles to any transaction with Synopsys or Cadence, despite knowing that the analysis we recently performed shows that serious regulatory risks to any transaction with Synopsys or Cadence remain.
- Icahn continues to ignore the destruction of value through loss of customers and employees from any failed process to sell the company.
ICAHN’S “PLAN B” IS NOTHING MORE THAN AN ATTEMPT TO USURP THE PLAN YOUR BOARD IS ALREADY EXECUTING
In an implicit acknowledgement that his “Plan A” is not workable, Icahn now touts a “Plan B.” “Plan B” is not truly a plan at all. It is simply an attempt to usurp two elements of your Board’s current strategy as Icahn’s own — SG&A expense reduction and share repurchase — in each case, with no details or new suggestions from Icahn.
- We have recently informed you of our reductions in non-GAAP SG&A expense by over 500 basis points as a percentage of revenue in the last two years. We are on track to reduce non-GAAP SG&A expense by approximately 200 basis points as a percentage of revenue in our current fiscal year.
- The resulting operating margin expansion — which continues our momentum towards achieving our goal of 20% operating margins — should drive improvements in profitability and free cash flow.
- We announced our intention to use this strong free cash flow to return approximately $150 million in capital to shareholders before Icahn came up with his “Plan B.”
In short, there is simply nothing new in Icahn’s “Plan B” that Mentor Graphics is not already doing.
ICAHN IS DISTORTING HIS NOMINEES’ QUALIFICATIONS AND THEIR RELEVANCE TO MENTOR GRAPHICS
-
José Maria Alapont. While Alapont may have demonstrated
leadership as the CEO of Federal Mogul, controlled by Icahn when it
came out of bankruptcy and now 76% owned by Icahn, Icahn’s assertion
that Alapont’s industry knowledge is applicable to Mentor Graphics
demonstrates how poorly Icahn understands our business.
Mentor Graphics provides solutions to companies that design systems and subsystems involving complex layouts and electrical circuitry, such as wire harnesses within airplanes and cars. In contrast, Mr. Alapont’s company is focused on components such as piston rings, bearings, and brake pads, none of which use any of our products.
In fact, in 2010 we asked Icahn to introduce us to his portfolio companies, and we met with Federal Mogul’s engineering team. We are open to help from Icahn or anyone else, but we were unable to find any fit with our products, and to date, Federal Mogul is not a customer. -
Gary Meyers. Icahn states that Meyers is “uniquely qualified”
through his experience as a CEO of Synplicity, a small-cap EDA company
with approximately 330 employees that generated less than $75 million
of annual revenues.
Icahn seeks to disguise Meyers’ real track record, stating only that Synplicity received a significant premium in the sale to Synopsys. Icahn conveniently ignores the poor performance of Synplicity. For example, Synplicity’s average SG&A expense as a percentage of revenue as a public company was 53%, considerably higher than the figures Icahn complains about at Mentor Graphics.
Icahn also fails to recognize that, despite the significant premium, Synplicity’s sale price of $8.00 per share was exactly the same price at which it began trading on its IPO eight years earlier. Meyers was an officer of the company during this entire period.
We do not understand how Mr. Meyers’ experience in EDA can even be compared to the experience of Dr. Fontaine Richardson, a pioneer of the EDA software industry and one of the directors whom Icahn seeks to replace. -
David Schechter . Icahn tries to give Schechter credit for his
service as a director of Hain Celestial Group, Inc. What Icahn fails
to mention is the significant shareholder value destruction at WCI
Communities, shares of which declined 97% during Schechter’s tenure as
a director, or BKF Capital, where the company generated a negative
shareholder return prior to Schechter's resignation only six months
after joining the Board.
Icahn also touts Schechter’s connection to Icahn Sourcing but fails to disclose that Mentor Graphics asked Icahn and Schechter to help evaluate potential cost savings through Icahn Sourcing in 2010. Ultimately, Icahn Sourcing was unable to provide any significant cost savings solutions to Mentor Graphics.
ICAHN IS DISTORTING MENTOR GRAPHICS’ CORPORATE GOVERNANCE TRACK RECORD
