Last week Mentor Graphics Corporation and LogicVision, Inc. announced that the two companies have signed a definitive merger agreement.

Let's first look at the financial aspects of the agreement. The terms stipulate that Mentor Graphics will acquire LogicVision. Under the terms of the agreement, which was approved by the boards of directors of both companies, LogicVision stockholders will receive 0.2006 of a share of Mentor Graphics common stock for each share of LogicVision, for aggregate consideration of approximately $13 million dollars (as of May 7, 2009).

The terms of the merger agreement are quite different from all previous acquisitions made be Mentor in the recent past. As described in the company 2009 Annual Report all acquisitions of other EDA companies since 2006 have been handled as straight acquisitions, with the acquired company assets and staff fully integrated into the appropriate division of Mentor. This one is different.

Under the terms of the merger agreement, the transaction is expected to be tax-free to the stockholders of LogicVision for U.S. federal income tax purposes. The transaction has been structured as a stock-for-stock reverse triangular merger whereby a wholly owned subsidiary of Mentor Graphics will merge with and into LogicVision, with LogicVision surviving the merger as a wholly owned subsidiary of Mentor Graphics. The transaction is subject to the approval of LogicVision stockholders as well as customary closing conditions (but is not subject to regulatory approvals). The transaction is expected to close during the third calendar quarter of 2009.
I have asked the corporate Communication department for an explanation and the one sentence answer was: " We'll talk more about the deal when it closes."

It is interesting to also note that the 2009 Annual Report from Mentor makes no mention of the existence of any subsidiary that is materially contributing to the operations of the company with respect to development, marketing, sales, or support of EDA products.

On the surface it looks like there is significant overlap between the products Mentor already has and those marketed by LogicVision. it must be said that there are differences in the approach to testing, and that some of the LogicVision IP may in fact increase the capabilities of the Memory Test products from Mentor.
LogicVision's Yield Insight product line is likely to provide marginal contributions to Mentor's Macro Test, while ETCreate and Silicon Insight from LogicVision will contribute in various degrees to Mentor's MBISTArchitect and BSDArchitect respectively.

The Mentor products mentioned are developed, marketed and sold by the IC Design to Silicon Division which reports to Joe Sawicki. But once the merger is completed, LogicVision will be a separate organization from Joe's division, and traditionally each of Mentor's divisions has developed, marketed, and sold its products individually.

I can think of two possible scenarios. One that has the DFT product move from Joe's division to the LogicVision subsidiary to be managed separately under a new General Manager. The other scenario is similar to the first when it comes to the home of the DFT products: the LogicVision subsidiary. But organizationally the new subsidiary will report to Joe Sawicki who will add the title of LogicVision General Manager to his already impressive business card.

It would of course be helpful if the transaction closes early enough in July to allow Mentor to be specific at DAC. I do not think that the "We'll talk more about the deal when it closes" line will have much legs during the conference.