Icahn offers Mentor Graphics a loan

NEW YORK/BANGALORE Tue Mar 29, 2011 10:00pm EDT

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NEW YORK/BANGALORE (Reuters) - Activist investor Carl Icahn, who is trying to take control of Mentor Graphics Corp (MENT.O), on Tuesday urged the chip-design software maker not to issue convertible debt and instead offered to lend it $220 million in the form of a note.

Earlier on Tuesday, Mentor Graphics said it plans to issue $220 million in debentures that could be converted into stock, and would use the proceeds to buy back $25 million in shares and repay some debt.

Icahn repeated his objection to Mentor Graphic's plan to issue the convertible debt, saying it would dilute the shares and discourage a potential buyer.

In his second publicly released letter of the day, Icahn said his company would be willing to lend Mentor the $220 million on a senior unsecured basis, at a rate of 6.25 percent for a period of two and a half years.

The note would not be convertible into common shares and will not pose any change of control penalties.

On Monday, the company had rejected Icahn's $1.73 billion takeover proposal saying it undervalued the company, but added that it remains open to offers.

"We would agree to serve as a stalking horse without fees to allow the company to seek better terms in the market," Icahn said in a letter to Mentor Graphics board of directors.

Before Icahn's offer, Mentor Graphics shares closed at $14.67, down 3.6 percent or 54 cents on the Nasdaq.

(Reporting by Sayantani Ghosh in Bangalore and Ilaina Jonas in New York; Editing by Joyjeet Das, Gary Hill)

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