Synopsys Sitting Pretty in Takeover Bid

Synopsys probably will not bid for Mentor, because it stands to gain so much in the near term, as Mentor engineers and customers look for alternatives, Smith said. Synopsys will "gain $200 million to $300 million [in revenue], and they gain Mentor's talent, and they don't have to do a thing."

The situation becomes dire as Mentor heads into negotiating season, with an unusually large number of contracts up for renewal this year. Many customers will sit on the sidelines until merger talks play out.

While sell-side analysts have tended to endorse a merger, Smith said they do not see the antitrust implications that may prevent it or necessitate spin-offs of the technology Cadence wants.

But analysts do question the merger on antitrust grounds. "Unlike the Synopsys-Avant! transaction ... I can think of at least five areas where you and Mentor currently overlap," Merrill Lynch analyst Jay Vleeschhouwer said on the Cadence call.

Analysts also question Cadence's ability to quickly integrate the two product portfolios, given the large degree of overlap. "It took Synopsys years to get the full benefits of Avant!" Vleeschhouwer said.

Fister cited the company's experience integrating dozens of smaller acquisitions in recent years. Chief Administrative Officer Bill Porter responded, "It will take time to integrate the products, but it has long-term benefits for customers." But executives declined to elaborate on how it would deal with any special conditions attached by regulators, such as spin-offs.

Of 22 product categories, the two companies have market dominance in 10, according to Smith. In two categories, they had 100% of the market in 2006, while two more gave them 84% to 85%. In six other categories, such as printed circuit board tools, a merger would give Cadence 58% to 84% of the market.