Siemens consolidates its industrial software capabilities by acquiring Mentor Graphics for $4.5 billion

Siemens expect the deal to lift its EPS within 3 years of this merger. Within 4 years of the closure of this acquisition, Siemens expects its EBIT to jump by $108 million.

In a strategic move aimed at strengthening its industrial software capabilities, Siemens is all set to acquire U.S.-based Mentor Graphics for $4.5 billion.

Siemens has disclosed, it would be paying $37.25 for every share of Mentor Graphics, which is a 21% premium on its Friday’s closing price.

The U.S. company’s products specialises in designing semiconductors.

Joe Kaeser, Siemens’ CEO wants to reshape the brand, which is a household name in Germany. He is aiming at making it more agile and profitable by selling off its non-core businesses and investing in areas which have fatter margins and promote faster growth.

One such area is industrial software. Earlier this year, Siemens acquired CD-adapco, a privately held U.S. engineering software firm, for nearly $1 billion.

Last week Siemens has disclosed that it plans on making a public listing of its $15 billion healthcare business, which resulted in a surge of its share price, which hit its 16-year high. Investors are hoping Siemens will inject new capital to boost its valuation.

Mentor Graphics “will complement our strong offering in mechanics and software with design, test and simulation of electrical and electronic systems,” said Klaus Helmrich, a member of Siemens management board.

According to Siemens, acquiring Mentor Graphics is likely to add to its earnings per share within three years of the completion of the merger. It also expects, this deal to lift its earnings before interest and tax (EBIT) by more than 100 million euros ($108 million) within four years.

In its last fiscal year through the end of January, Mentor Graphics had generated revenues of $1.2 billion and had reported an adjusted operating margin of 20.2%.

Mentor Graphics had been under pressure from Elliott Management Corp, which had acquired an 8.1% stake in the company in September this year and had said that its shares were seriously undervalued.

Deutsche Bank and JP Morgan were Siemens’ advisers on this deal.

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