Siemens AG entered into a merger agreement with Oregon-based Mentor Graphics that will see the industrial group take over the design automation and industrial software developer for an estimated $4.5 billion, a 21% market premium. The strategy driving the purchase is to accelerate and improve Siemens’ resources for revamping industrial automation networks, giving it mechanical, thermal, electrical, electronic and embedded software design capabilities to make existing operations capable of engaging the Industrial Internet of Things (or, Industry 4.0.)

Specifically, Siemens expects that Mentor Graphics will expand and upgrade its own “Digital Enterprise Software” portfolio, adding integrated circuit (IC) design, “System-on-Chip”, and automotive electronics capabilities, which are seen essential components to its menu of industrial software and automation technologies for digital functionality.

“It's a perfect portfolio fit to further expand our digital leadership and set the pace in the industry," said Joe Kaeser, president and CEO of Siemens AG.

Mentor's directors approved the merger and recommended it to shareholders.

Siemens emphasized that investor group Elliott Management — which last month scotched General Electric Corp.’s attempted takeover of SLM Solutions — is committed to supporting the takeover.

"With Mentor, we're acquiring an established technology leader with a talented employee base that will allow us to supplement our world-class industrial software portfolio,” according to Klaus Helmrich, a member of Siemens’ managing board. “It will complement our strong offering in mechanics and software with design, test and simulation of electrical and electronic systems."

In its statement Siemens emphasized the importance of Mentor’s integrated circuit and systems design, simulation, and manufacturing software for its “Digital Enterprise Software” portfolio, which it noted are essential for connected products, like autonomous vehicles. “The combination provides mechanical, thermal, electronic, and embedded software tools which will allow Siemens' customers to further accelerate their innovation, drive production efficiencies and optimize the operation of their products in the field,” according to the company’s statement.

Siemens expects total net revenue increases (EBIT) over €100 million ($107.5 million) within four years of closing the transaction.

Siemens expects to close the acquisition by 2Q 2017.