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Mentor Graphics Corporation
(Name of Registrant as Specified In Its Charter)
Icahn Partners LP
Icahn Partners Master Fund LP
Icahn Partners Master Fund II LP
Icahn Partners Master Fund III LP
High River Limited Partnership
Hopper Investments LLC
Barberry Corp.
Icahn Onshore LP
Icahn Offshore LP
Icahn Capital L.P.
IPH GP LLC
Icahn Enterprises Holdings L.P.
Icahn Enterprises G.P. Inc.
Beckton Corp.
Carl C. Icahn
Brett Icahn
David Schechter
Gary Meyers
Jose Maria Alapont
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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FOR IMMEDIATE RELEASE
ICAHN ISSUES OPEN LETTER TO SHAREHOLDERS OF MENTOR GRAPHICS
New York, New York, April 28, 2011
Contact: Susan Gordon (212) 702-4309
Carl C. Icahn today issued the following open letter to shareholders of Mentor
Graphics Corporation:
CARL C. ICAHN
767 Fifth Avenue, 47th Floor
New York, New York 10153
April 28, 2011
Dear Fellow Shareholders:
Most of Walden Rhines' recent letter makes no sense to us or is simply an
obfuscation of the facts. Additionally, we fail to understand why Rhines would
resort to fear mongering tactics when we are only seeking minority
representation on the Board of Directors of Mentor Graphics. What is this
entrenched Board afraid of? We ask all shareholders to ask themselves this
question - if you inherited ownership of this Company, would you allow the
composition of this entrenched Board to remain unchanged (especially in light of
its abysmal 17-year record (i))? American shareholders (at least in theory)
enjoy a system of corporate democracy. This democracy is only possible if
shareholders exercise their right to vote and hold those in power accountable.
However, Rhines seems desperate to keep the status quo and to prevent any
changes from happening.
It is our belief that this entrenched Board and Walden Rhines do not want to
sell this Company and will hide behind "business judgment" defenses and
intimidation tactics, such as their recent efforts to publicly name certain
logical strategic buyers and prejudge the regulatory risks of entering into a
transaction with those buyers. We demand that this Board be open to such
possibilities. While we believe shareholder performance may be improved through
improved oversight of SG&A expenses and dilution, the magnitude of potential
cost synergies and strong strategic rationale make a sale to a strategic
acquirer an opportunity this Board should not dismiss. In light of Rhines' and
this entrenched Board's history, we question whether they will act in all
shareholders' best interests. It has been our experience that companies often
prefer not to engage in hostile deals, and the history of this Board makes it
even less likely. Rhines seems to like to mischaracterize our words and recently
made the following statement in a letter.
Rhines states: "Icahn's suggestion that Cadence's withdrawal resulted from
Mentor Graphics' governance practices simply defies logic."
OUR REPLY: Logic leads us to question whether this entrenched Board is acting in
its shareholders' best interests. On June 17, 2008, Cadence stated publicly:
"Over the last two months, we have sought to engage you and your Board of
Directors in discussions regarding our proposal to combine Cadence Design
Systems, Inc. and Mentor Graphics Corporation. We are disappointed that, despite
our best efforts, you have thus far been unwilling to meaningfully participate
in such discussion" and "you informed us that, even without any substantive
discussion with us or negotiation of our proposal, Mentor Graphics' concluded
that it did not wish to pursue discussions with us given Mentor Graphics' desire
to say independent." On August 15, 2008, Cadence withdrew its offer and stated:
"It is unfortunate for Mentor Graphics shareholders, however, that despite our
best efforts, Mentor Graphics' Board and management were unwilling to engage in
substantive discussions Mentor Graphics' failure to engage in substantive
discussions on our all-cash premium proposal prevented us from confirming for
our financing sources the significant synergies associated with this transaction
." These comments demonstrate that this entrenched Board has a history of
creating obstacles. Cadence's perception of this entrenched Board's behavior was
clear and that (along with a series of events since then that we have outlined
in previous documents filed with the SEC) causes us to question Mentor Graphics'
governance practices.
We will now address certain other statements made by Rhines in his recent
letter, even though most of them barely merit a response.
Rhines stated: "Icahn's primary aim is to provide himself with liquidity through
a public sale process that is risky and is likely to destroy the shareholder
value that your company has created."
OUR REPLY: Never have we stated that we seek liquidity. What we seek is a Board
that will act in the best interest of shareholders and thereby create value for
all shareholders. As we indicated previously, it was and remains our belief that
a strategic acquirer (due to potentially significant cost synergies and strong
strategic rationale) may be able to pay a significant premium over the current
stock price for this Company. The reason this concept appeals to us is not
liquidity but the significant stock price appreciation that all shareholders may
receive. In case Rhines does not remember, we just offered to pay $17 per share
for Mentor Graphics and agreed to serve as a "stalking horse" by accepting no
fees if a strategic buyer agreed to a superior offer. Any bid would be subject
to shareholder approval. Why won't Rhines let shareholders decide if they wish
to sell the Company at a large premium? Is he afraid higher bids will
materialize? Additionally, why would we agree to pay $17 per share if we were
simply interested in liquidity?
Furthermore, we are confused by Rhines' claim that Mentor has created
shareholder value. All three directors we seek to replace have been on the Board
since 1994, just after Rhines became CEO. Mentor's stock is now at approximately
the same level it was in 1994 (ii). Unlike shareholders, Rhines did quite well
during this timeframe, receiving $65 million in compensation (iii). Fontaine
Richardson, one of the three directors we seek to replace, chairs the
compensation committee that awarded these payments and has served on the Board
since 1983.
Rhines stated: "In an implicit acknowledgement that his [Icahn's] "Plan A" is
not workable, Icahn now touts a "Plan B." In short, there is nothing new in
Icahn's "Plan B" that Mentor Graphics is not already doing."
OUR REPLY: Icahn's "Plan A" is to sell the Company to a strategic acquirer.
Never have we acknowledged that "Plan A" is not workable, neither explicitly nor
implicitly. Plan A, in our opinion, represents the best opportunity for
shareholders. We do not believe a deal with either Cadence or Synopsys would
face insurmountable issues from a regulatory perspective and no information the
Board has released recently has changed our opinion. This entrenched Board has
publicly prejudged the feasibility and regulatory risks of a merger and we view
these efforts as a serious disservice to the shareholders this entrenched Board
is supposed to represent. If this entrenched Board was approached by a strategic
acquirer (publicly or privately) would this Board sell Mentor at a significant
premium or would it hide behind "business judgment"? Given this entrenched
Board's history, we are very concerned that what shareholders would perceive to
be reasonable may be quite different from this Board's perception.
Icahn's "Plan B" is SG&A reduction coupled with share repurchases. We find it
hard to believe that finally, in the midst of our contested board election, this
Board's sudden commitments to SG&A expense reduction and dilution are
believable. This Board's record over the past 17 years causes us to question
their ability and willingness to do so. Our "Plan B" has the potential to create
significant value for shareholders. Keep in mind that, over the past 17 years,
despite revenue growth of 5.3% annualized, this Board has overseen growth in
SG&A expenses of 5.7% annualized, leading to a current SG&A expense as a
percentage of revenues of 46%, far higher than both its closest peers, Synopsys
and Cadence (iv). Over the past eight years, Mentor has increased its basic
shares outstanding by 64% while Synopsys reduced its share outstanding by 4% and
Cadence held its share count flat (v). This is simply unacceptable to us and the
Company's most recent plans on both dilution and SG&A fail to go far enough in
our opinion.
Rhines states: "Icahn's assertion that Alapont's industry knowledge is
applicable to Mentor Graphics demonstrates how poorly Icahn understands our
business."
OUR REPLY: This statement shows how Rhines is trying to obfuscate the facts.
Transportation Solutions represents 15% of Mentor's product bookings in recent
quarters and is growing. Jose Maria Alapont (one of our nominees) is the CEO of
Federal-Mogul Corporation, which generates over $6 billion in revenues annually
and is a supplier to many of the customers Mentor is targeting in this segment.
As the largest shareholder of both Federal Mogul and Mentor Graphics, and
despite Rhines' assertions to the contrary, we are quite aware that both
companies do not sell the same products. However, the point is that many of
their customers are the same. Considering Mentor is trying to make further
inroads into this area, a highly accomplished executive such as Jose Maria would
bolster Mentor's efforts. We find Rhines' criticism of Jose Maria ironic
considering that Mentor asked our firm to help assist Mentor as it struggled
reaching the appropriate senior executive at a certain customer. If Rhines does
not remember, Mentor thanked us for helping secure what it claimed to be one of
its largest orders ever within this segment. It is our belief that Jose Maria's
relationships that were developed over a lifetime would be of great benefit to
this Board as Mentor attempts to further penetrate the transportation industry.
Rhines stated: "Icahn seeks to disguise Meyers' real track record."
OUR REPLY: Synplicity's stock was trading at $4.98 when Gary Meyers (one of our
nominees) was named CEO on 9/28/04 and the sale to Synopsys was announced for
$8.00 per share on 3/24/08 (a 61% premium over the price on the date Gary was
named CEO). That is Gary's track record as CEO. A record Rhines should be
envious of considering Mentor's stock is now at approximately the same level it
was at in 1994. The CEO is responsible for the performance of a company and
ultimately makes the decisions. It is not fair to give credit or discredit an
employee of a company publicly since there is no public information on
specifically how that employee performed. That is why shareholders don't know
how to assess the three incumbent directors we seek to replace in terms of how
they performed on their last job (other than "private investor", "board
director", or "industry consultant"). According to Mentor's proxy statement,
Fontaine Richardson, who Rhines claims is incomparable to Gary Meyers, last held
a job in 2000 - how did the venture capital fund he managed perform and what
were the assets under management? What we do know is that Fontaine led the
compensation committee at Mentor that paid Rhines $65 million during this period
of poor performance and that Fontaine has been on the board of Mentor for 28
years - since 1983! Gary was CEO of a publicly traded peer to Mentor and stayed
on as a senior executive at Synopsys (Mentor's larger peer) until April 2010. We
find Rhines' criticism to be quite unfair. James Fiebiger's last job was as CEO
of a private company named Lovoltech for five years from 1999 to 2004. What was
the scale of the capital raised or the performance for its shareholders? What we
do know about James Fiebiger is that he is the lead independent director for
Mentor Graphics. However, how can he be truly "independent" when he has served
on the Board with Rhines, the CEO, for 17 years (since 1994)? Marsha Congdon's
last job was in 1997 as an employee of US West. Again, how can we publicly
assess her performance? Look at the track records and experiences of all three
of our nominees. How can Rhines insinuate that they are not qualified to serve
on this Board?
Rhines states that at "BKF Capital the company generated a negative shareholder
return prior to Schechter's resignation only six months after joining the
Board."
OUR REPLY: In our opinion, rather than focus on what is relevant, Rhines seeks
to discredit our nominee, David Schechter, with meaningless information. The
reality that Mentor does not want to discuss is that it is David's job to
co-manage an investment portfolio (including Carl Icahn's 14.3% stake in Mentor
Graphics) and that portfolio is up 80% in its first year since its inception on
4/1/10. David has extensive board experience working for Carl Icahn on the
boards of several of his portfolio companies that he controls or holds a
minority investment. David has participated, as a director in multiple
situations, to implement the methodologies and capabilities developed by Carl
Icahn's organization to "cost control", leading to significant cost savings
without affecting revenues. Not only is David's history as a director on the
board of BKF irrelevant in our opinion but actually factually incorrect. During
the approximately six months that David served on the Board of BKF Capital in
2008, the company had no operations and an equity market capitalization of only
approximately $8 million; and during David's tenure on that board the stock
price was approximately flat.
Rhines states: "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."
OUR REPLY: Rhines fails to mention that the reason Icahn Sourcing was unable to
provide any significant cost saving solutions was that Mentor Graphics chose not
to follow Icahn Sourcing's advice, limited the scope of such advice to
relatively insignificant areas of cost spend such as small packages and cell
phones, and was unwilling to study more meaningful areas of spend.
Rhines states: "Icahn's criticism of the meeting date for the Annual Meeting of
Shareholders is misplaced on a number of scores. The May 12th meeting date is
consistent with Mentor Graphics' historical practice. Moreover, the timing of
our Annual Meeting clearly did not impede the nomination of directors by
shareholders."
OUR REPLY: Mentor's entrenched Board gave shareholders just 10 days to nominate
directors. To claim our criticism of this action is "misplaced on a number of
scores" is simply ridiculous to us.
Rhines states: "Icahn's assertion that our issuance of shares has destroyed
shareholder value is simply wrong."
OUR REPLY: Over the past eight years, Mentor has increased its basic shares
outstanding by 64% while Synopsys reduced its share outstanding by 4% and
Cadence held its share count flat. Even in the midst of a contested election,
Mentor issued a convertible debt security that is significantly dilutive in the
event of a change of control for cash, despite no urgency and clear
alternatives. Now, only after shareholder outrage in the midst of a contested
election, the Company has changed course and announced plans to repurchase
shares. This Board's plan does not go far enough and Mentor should use ALL
excess cash flow to repurchase shares. How can shareholders trust this Board
given its track record on this subject?
MENTOR GRAPHICS NEEDS NEW IDEAS, NEW BLOOD, AND A NEW WAY OF THINKING. OVER TWO
DECADES OF ENTRENCHMENT, THIS BOARD HAS LOST THE DRIVE TO PERFORM. THEY HAVE NOT
BEEN HELD ACCOUNTABLE. AS A RESULT, THEY ALLOWED THE EXPENSES OF THE COMPANY TO
GROW YEAR AFTER YEAR WITHOUT THE PROPER SYSTEMS OF CONTROL IN PLACE NECESSARY TO
MAINTAIN EFFICIENCY. THEY HAVE ALLOWED FOR OUTSIZED SHARE DILUTION YEAR AFTER
YEAR WHILE THE SHAREHOLDERS SUFFERED. WE BELIEVE OUR NOMINEES CAN BRING CHANGE.
WE ARE CONFIDENT THAT IF YOU VOTE FOR OUR NOMINEES, SHAREHOLDERS WILL NO LONGER
FEEL COMPELLED TO GO ON TELEVISION AND CALL THIS COMPANY A "COUNTRY CLUB." WE
STRONGLY ENCOURAGE YOU TO VOTE THE GOLD PROXY CARD.
Sincerely yours,
CARL C. ICAHN
If you have any questions or require any assistance in executing your proxy,
please call:
D.F. King & Co., Inc.
Shareholders call toll-free: (800) 714-3313
Banks and Brokerage Firms call: (212) 269-5550
IMPORTANT DISCLOSURES
These materials are based solely on information contained in the public domain.
We have relied upon and assumed, have not attempted to independently investigate
or verify, and do not assume any responsibility for, the accuracy, completeness
or reasonableness of such information. No representation or warranty, express or
implied, is made as to the accuracy or completeness of any information included
or otherwise used herein, and nothing contained herein is, or shall be relied
upon as, a representation or warranty, whether as to the past, the present or
the future. These materials are necessarily based upon information available to
us, and financial, stock market and other existing conditions and circumstances
that are known to us, as of the date of these materials. We do not have any
obligation to update or otherwise revise these materials.
The information contained in these materials does not purport to be an appraisal
of any of the assets or liabilities of Mentor Graphics or any of its business
units or subsidiaries, or any other companies mentioned herein, and does not
express any opinion as to the price at which the securities of any such entities
may trade at any time. The information and opinions provided in these materials
take no account of any investor's individual circumstances and should not be
taken as specific advice on the merits of any investment decision. Moreover,
nothing contained herein should be construed as providing any legal, tax or
accounting advice, and you are encouraged to consult with your legal, tax,
accounting and investment advisors. You should consider these materials as only
one of many factors to be considered in making any investment or other
decisions. We do not accept any liability whatsoever for any direct or
consequential loss howsoever arising, directly or indirectly, from any use of
these materials.
ON APRIL 1, 2011, CARL C. ICAHN AND AFFILIATES ("ICAHN") FILED A DEFINITIVE
PROXY STATEMENT WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") IN
CONNECTION WITH THE UPCOMING 2011 ANNUAL MEETING OF SHAREHOLDERS OF MENTOR
GRAPHICS. SHAREHOLDERS ARE ADVISED TO READ ICAHN'S DEFINITIVE PROXY STATEMENT,
AND ANY OTHER RELEVANT DOCUMENTS FILED BY ICAHN WITH THE SEC, BEFORE MAKING ANY
VOTING OR INVESTMENT DECISION BECAUSE THEY CONTAIN IMPORTANT INFORMATION. THE
DEFINITIVE PROXY STATEMENT IS, AND ANY OTHER RELEVANT DOCUMENTS AND OTHER
MATERIAL FILED BY ICAHN WITH THE SEC CONCERNING MENTOR GRAPHICS WILL BE, WHEN
FILED, AVAILABLE FREE OF CHARGE AT HTTP://WWW.SEC.GOV AND
WWW.READMATERIAL.COM/MENTOR. IN ADDITION, COPIES OF THE PROXY MATERIALS MAY BE
REQUESTED FROM ICAHN'S PROXY SOLICITOR, D.F. KING & CO., INC., BY TELEPHONE AT
(800) 714-3313.
(i) The closing share price on 12/31/93 for Mentor was $13.75 versus $14.01 on
4/18/11.
(ii) The closing share price on 12/31/93 for Mentor was $13.75 versus $14.01 on
4/18/11.
(iii) Walden Rhines received $20MM in base and bonus/non-equity incentive plan
compensation, along with 4.3MM options and shares worth $45MM applying SFAS
123R methodology post 1/1/06 and the midpoint of potential realizable value
at assumed annual rates of stock price appreciation for option term of 5%
to 10% prior to 1/1/06 and the closing share price on 12/31/93 for Mentor
was $13.75 versus $14.01 on 4/18/11.
(iv) Company 10K and 10Q filings over the last twelve months.
(v) Company SEC filings.
Mentor Graphics Corp. (NASDAQ:MENT)
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