CIMdata PLM Industry Summary Online Archive

31 March 2011

Financial News

Mentor Graphics Proceeds with Convertible Debt Offering

Mentor Graphics Corp. announced that the company’s Board of Directors had affirmed its decision to proceed with the $253 million offering of 4.00% Convertible Subordinated Debentures due 2031 (the “4.00% Debentures”) announced on March 29, 2011.

“the high level of institutional investor interest in our new convertible debt offering resulted in attractive terms for the company and demonstrated strong investor support for Mentor’s business strategy and long-term prospects.”

.The offering of the 4.00% Debentures allows the company to replace not only its outstanding 6.25% Convertible Subordinated Debentures due 2026 but also its $18.5 million secured term loan. The offering provides the following financial benefits:

•Reduces the cash interest rate on outstanding debentures from 6.25% to 4.00%;

•Increases the conversion price on Mentor’s debentures from $17.97 to $20.54 per share;

•Reduces dilution by using $25.0 million of proceeds to repurchase approximately 1.7 million shares;

•Extends the date on which debenture holders can force repayment by five years, from 2013 to 2018;

•Provides Mentor the ability to negotiate an amendment to extend the term of its existing revolving credit facility beyond 2013; and

•Effectively reduces interest costs from the company’s secured term loan from 4.81% to 4.00%.

The initial purchasers of the 4.00% Debentures exercised their over-allotment option to purchase $33 million of additional 4.00% Debentures on March 30, 2011. Commenting on the offering, Gregory K. Hinckley, President and Chief Financial Officer of Mentor, stated, “the high level of institutional investor interest in our new convertible debt offering resulted in attractive terms for the company and demonstrated strong investor support for Mentor’s business strategy and long-term prospects.”

The company also announced that its Board has rejected Carl Icahn’s loan proposal that was received on the night of March 29, 2011 after the company had priced its 4.00% Debentures offering. The Board noted that Mr. Icahn’s last-minute debt financing proposal lacked detail on important terms. To the extent that proposed basic terms were provided, the Board noted that the Icahn proposal had a higher interest rate and found that the Icahn proposal for only a two and one half year maturity would interfere with the company’s ability to negotiate a meaningful extension of its revolving credit facility that is set to expire in June 2011, creating unnecessary risk in the company’s capital structure. Mr. Icahn’s proposal was also not a binding commitment. Moreover, prior to the launch of the 4.00% Debentures offering, Mentor’s Board carefully had evaluated the merits of a non-convertible debt financing as compared to a convertible debt financing and concluded that the latter was the more appropriate course of action. For these and other reasons, the Board affirmed that it was in the best interests of the company and its shareholders that the company proceed with the offering of its 4.00% Debentures.

Become a member of the CIMdata PLM Community to receive your daily PLM news and much more.

Tell us what you think of the CIMdata Newsletter. Send your feedback.

CIMdata is committed to your privacy. Your personal information will never be sold or shared outside of CIMdata without your express permission.

Subscribe