Mentor Stock (NASDAQ:MENT) Flies High on Siemens (OTCMKTS:SIEGY) Offer
Siemens AG (ADR) (OTCMKTS:SIEGY) has offered to buy Mentor Graphics Corp (NASDAQ:MENT) for $4.5 billion.
The companies issued a joint press release on Monday which states that Siemens will acquire design automation and industrial software provider Mentor Graphics for $37.25 per share. This is equal to about a 21% premium to the closing price of Mentor stock, which had ended Friday at $30.68. (Source: “Siemens to expand its digital industrial leadership with acquisition of Mentor Graphics,” Siemens AG (ADR), November 14, 2016.)
Mentor Graphics is a pioneer and leader in design automation software, ranging from integrated circuit (IC) and system-on-chip (SoC) design to automotive electronics solutions. Its capabilities are essential for today’s smart connected products such as autonomous vehicles, and will take Siemens closer to its “Vision 2020.”
The acquisition is important, as the German industrial giant plans to expand its footprint in the U.S. and enhance its industrial software capabilities. The combined company will become a unique digital industry player that offers mechanical, thermal, electrical, electronic, and embedded software design capabilities on a single integrated platform.
Mentor stock (MENT stock) has returned about 67% year-to-date as compared to the S&P 500, which has posted returns of eight percent.
Siemens stock (SIEGY stock) reported its fourth-quarter earnings last week, and it exceeded its twice-raised guidance. The company had reported a 20% net profit increase, driven by strong underlying growth in most of its industrial business divisions. SIEGY stock had gone up sharply on the news before declining in the next trading session.
With its acquisition of Mentor Graphics, Siemens expects to achieve synergies through a combination of revenue growth and anticipated margin expansion. Siemens expects a total earnings before interest and taxes (EBIT) impact of over €100.0 million ($108.6 million) within four years of closing the transaction.
Moreover, the transaction is expected to be earnings per share (EPS)-accretive within three years of closing. Siemens expects to close the Mentor acquisition by the second quarter of calendar-year 2017.
Siemens CEO Joe Kaeser has been pushing the company into software applications that are critical in running its industrial equipment. According to the German brokerage Baader Helvea, the agreed-upon price is not overly expensive, and will make Siemens more competitive in the industrial software business. (Source: “Siemens to Buy U.S. Software Maker Mentor for $4.5 Billion,” Bloomberg, November 14, 2016.)
Bottom Line on SIEGY stock and MENT stock
Siemens stock has posted year-to-date returns of 26%. The German industrial giant is giving shape to its “Vision 2020” by expanding its unique portfolio of industrial software. SIEGY stock is likely to benefit as the company gains further strength in the coming year.
Meanwhile, Mentor stock is already up by 19% in pre-market trading, and MENT stock is likely to hit a new 52-week high on the news.