Siemens Chief Executive Joe Kaeser is keen to reshape the group in order to make it more profitable and agile and is looking to sell off non-core businesses while investing in areas that promise faster growth and better margins.
Siemens informed markets earlier this morning of the deal.
Mentor Graphics makes software for designing semiconductors and the market for software is where Siemens finds itself increasingly in competition with firms that are able to develop technology faster. Earlier this year, Siemens bought CD-adapco, a U.S. engineering software firm, for $1bn.
Mentor Graphics, "will complement our strong offering in mechanics and software with design, test and simulation of electrical and electronic systems," Siemens management board member Klaus Helmrich said in a statement.
Mentor Graphics generated revenues of around $1.2 billion in its last fiscal year. Despite that it has been under pressure from activist hedge fund Elliott Management Corp who reportedly took an 8.1 percent stake in the company in September and who argued that the company’s shares were deeply undervalued.