Siemens to acquire Mentor Graphics

German engineering group Siemens has agreed to buy U.S.-based Mentor Graphics in a $4.5-billion deal that will bolster its industrial software operations and help it keep pace with changes to manufacturing technology.

Siemens will pay Mentor Graphics shareholders $37.25 per share, a 21-percent premium to Friday’s closing price, and expects to fund the deal from cash reserves, it said today. Siemens chief executive Joe Kaeser has set out to reshape the group, a household name in Germany, to make it more profitable and agile by selling off non-core businesses and investing in areas such as software that promise faster growth and fatter margins.

Mentor Graphics makes software that helps semiconductor companies design and test their chips before they manufacture them and represents Siemens’s biggest deal in the industrial software sector since it bought UGS for $3.5 billion in 2007. Siemens said it now had all software that its customers needed to develop complex electronic machinery such as aeroplanes, trains and cars.

“Our customers are driving a paradigm shift toward more and more complex and smart connected products such as autonomous vehicles,” Siemens finance chief Ralf Thomas told analysts and journalists during a conference call on Monday.

“This acquisition is our answer to this development,” he added. Baader Helvea analyst Guenther Hollfelder, who has a “buy” recommendation on Siemens shares, said the acquisition did not appear overly expensive at a valuation of 18.5 times operating profit.

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(Additional reporting by Liana Baker in San Francisco and Michael Flaherty in New York; Editing by Keith Weir)