Mentor Graphics greenshoe takes 4% convertibles to $253 million; Icahn's loan offer rejected

By Angela McDaniels

Tacoma, Wash., March 31 - Mentor Graphics Corp. said the underwriters for its 20-year 4% convertible subordinated debentures exercised their $33 million over-allotment option in full, increasing the size of the deal to $253 million.

The company priced $220 million of the convertibles after the market close on Tuesday at par with an initial conversion premium of 40%.

Citigroup Global Markets Inc. and Merrill Lynch were the bookrunners.

The company also announced that its board of directors rejected Carl Icahn's stalking-horse loan proposal made on Tuesday after the company priced the convertibles.

Icahn offered in February to buy the company for $17.00 a share and was rejected. He objected to the convertibles offering, saying it was dilutive and would make a tender offer or other acquisition proposal more difficult to accomplish.

He offered a $220 million 6.25% senior loan with a term of two and a half years.

"Based upon your earnings guidance of $1.00 per share for your next fiscal year, we fail to see why the company would not be able to retire this debt with earnings generated during that timeframe, thereby leaving the company debt free," Icahn said in a Tuesday letter to the board. The letter was included in a news release.

Mentor Graphics said the proposal "lacked detail on important terms" and had a higher interest rate. In addition, the term of the loan 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."

Icahn fires back

In response, Icahn asked the company to make public all of the terms of the convertibles, including the "poisonous 'make-whole' provision," which he called "a blatant attempt to derail an acquisition proposal."

"The effect of this make-whole provision is that in the event of a sale of the company during the no-call period, the conversion price of this debt may decrease dramatically from $20.54. Depending on time and price, it could fall close to where the company's stock was trading when you announced this absurd offering," Icahn said in a Thursday letter to the board that was included in a news release.

The convertibles are callable beginning April 5, 2016.

Mentor Graphics said the offering received a high level of institutional investor interest. Icahn wondered if this was "motivated by the fact that they could be effectively purchasing stock for almost as low as the current market price (to the extent the company is sold) with the downside protection of a debt instrument."

The proceeds of the convertibles will be used to buy back up to $25 million of common stock, to repay an $18.5 million term loan due 2013 and to retire the company's existing 6.25% convertible subordinated debentures due 2026.

Wilsonville, Ore.-based Mentor Graphics provides software used in electronic design.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.